| NEW YORK
NEW YORK Oct 28 IEX Group is the latest U.S.
trading platform alongside 44 other alternative trading system
(ATS) and 13 stock exchanges, but rather than try to blend into
the current market structure, IEX says its goal is to disrupt
IEX, which has ambitions to become an exchange, is owned
exclusively by fund companies - known as the "buy-side" - and
individuals, including IEX's staff, Chief Executive Brad
Katsuyama said in an interview.
"We will be the first registered ATS that is owned by the
buy-side, which means we are not competing with different
brokers. We're more of a utility, and by definition, we can
build things that are in the best interest of the buy side."
Buy-side customers were able to connect on Friday to IEX
through brokers and so far, more than 60 brokers have
registered, or are in the process of doing so, to gain access to
the platform, including Virtu Financial.
"We are connected and making markets in there today and
supportive of people trying alternative models," said Chris
Concannon, a partner at Virtu and former Nasdaq executive.
Part of what sets IEX apart from its competitors is its fee
Markets normally use what is known as a "maker-taker" fee
model. A firm that makes liquidity by posting shares for sale,
receives a rebate, often around 30 cents per 100 shares. The
taker, who is buying the shares, pays a fee, often offsetting
Some markets offer rebates that are higher than the fees
they charge in order to attract order flow, actually losing
money on some transactions. Because rebates are given to
brokers, they may not make it back to the customer, creating
conflicts and modifying behaviors, said Katsuyama.
Jeff Sprecher, CEO of futures market operator
IntercontinentalExchange Inc, recently said the high
rebates in equity markets are "ridiculous," and vowed to change
the model once ICE completes its acquisition of Big Board
operator NYSE Euronext.
"Philosophically, I completely agree with Sprecher. He's a
smart person who walks into this and says, 'This doesn't make
sense,'" said Katsuyama, formerly global head of electronic
sales and trading at RBC Capital Markets.
IEX is charging a flat fee of 9 cents per 100 shares for
both buyers and sellers. The more orders IEX can attract, the
more profit it can make.
"Exchanges should be in the business of matching buyers and
sellers and charging a fee for that. And the ones who do it
better should get more of that flow," Katsuyama said.
Most exchanges and ATSs tend to look more like technology
companies with trading arms attached to them, generating
significant income through selling technology, like trading
systems, or microwave towers that can beam orders fractions of
seconds faster than high-speed fiber optic networks.
"You look at the things that exchanges and other ATSs are
selling - those are not things that are geared towards long-term
investors. Microwave towers are not geared towards long-term
investors. I think we are unique in that way," Katsuyama said.
OPTING OUT OF THE ARMS RACE
The push to get faster technology than the next trading firm
or platform has been likened to an arms race. It has also
magnified the damage from technical glitches, such as when
Knight Capital Group, now a part of KCG Holdings, sent a
flood of accidental orders into the market over 45 minutes, in
August 2012, costing it more than $460 million and leading to
the firm's sale.
IEX has the most up-to-date technology, but with its focus
on long-term investors, does not make speed its top priority.
Katsuyama said the danger of that arms race is that it skews
priorities. If making a piece of software more resilient might
require slowing it down by a few microseconds, the exchange
trying to be the fastest might think twice about it. For IEX,
which actually slows down all of its orders by fractions of a
second in an attempt to create a more even playing field, the
issue would not even arise, he said.
"People have lost confidence that the markets are working
and are fair and that they're working in their best interest.
That's such a significant crisis in confidence, and we think
there's a massive opportunity for us."