Who Wants to Swim in the IEX!


As most of you know by now, a new ATS (alternative trading system) called IEX will begin trading on Friday, October 25th.  We are proud to be one of their first broker-dealer partners and are looking forward to trading with them starting Friday.


IEX and Themis share a like-minded view of how today’s fragmented market structure has increased trading costs for institutional investors.  IEX is designed to cleanly match institutional buy and sell interest, and implements technology and order types that combat the predatory trading, rebate arbitrage, and latency arbitrage that have grown due to inefficiencies and conflicts of interest in our market structure.


Here are just a few things that we think make IEX different:


–          IEX does not have any broker-dealer affiliates or owners. It has no “liquidity partner programs.”

–          IEX does not use any maker-taker pricing scheme; there are no rebates.

–          IEX separates where orders are submitted and matched into two locations; this minimizes the informational advantage/ latency arbitrage, which is prevalent in so many other trading venues.

–          IEX employs a timing strategy which builds in a 350 microsecond delay – again minimizing informational advantage/ latency arbitrage.

–          IEX believes in simplicity, and only allows four order types: market, limit, mid-point peg and fill-or-kill. Their price-sliding is simple (midpoint), and should prevent the queue jumping that exists at other market centers that offer numerous other order types.

–          IEX does not communicate any order information, nor information about that flow’s owners, to any subscribers (i.e. institutional, retail, prop trading, market making).

–          IEX openly describes its book priority (price-broker-time). While other brokers with ATS’s often say they are happy to provide transparency to their customers who ask, IEX puts its money where its mouth is.


Our friend Senator Kaufman has always said that “fairness and transparency always trumps liquidity”.    In a recent Bloomberg interview, IEX CEO Brad Katsuyama took a page out of Senator Kaufman’s transparency playbook, as he urged other ATS’s to follow IEX’s lead:


“By releasing the Form ATS, “we plan on blazing a trail and challenging other ATSs to follow.  Understanding how a market works is critical to building trust that a market is truly operating in your best interests.”


At a recent industry conference, we asked two dark pool/ ATS operators their thoughts on IEX, and how it is differentiating itself from other dark pools. Each proclaimed that IEX was doing nothing really innovating or new. We disagree, as we hope you do as well. We hope those gentlemen read IEX’s Form ATS . Sadly, in today’s markets fairness, transparency, and simplicity are new – and also needed.


Who wants to go swimming!