“America’s equity markets are broken.”
That is the opening line of an op-ed in The New York Times today written by law professor Jonathan Macey and David Swensen, chief investment officer at Yale.
“Individuals and institutions make transactions in rigged markets favouring short-term players,” the op-ed said.
The op-ed goes on to discuss the application by IEX Group — the stock-trading venue at the center of Michael Lewis’ book “Flash Boys” — to become an exchange.
Yale has a small indirect stake investment in IEX.
To recap, IEX filed with the Securities and Exchange Commission in September to become a stock exchange. Business Insider has been covering the application, and the debate surrounding it, ever since.
Most recently, Norges Bank Investment Management — the biggest wealth fund in the world — sent a letter to the Securities and Exchange Commission supporting the application.
The Macey and Swensen op-ed can be summarized as follows:
- The New York Stock Exchange, Nasdaq and BATS – which compete with IEX – cater to high-frequency traders.
- HFTs pay to locate their computers next to exchanges’ order execution centres, get early access to trade information and front run other clients.
- IEX plans to focus on making money “more ethically” by attracting long-term investors.
- “An unholy alliance” of NYSE, Nasdaq, Bats, and hedge fund Citadel have petitioned the SEC to reject the IEX application.
Here is the kicker:
Maybe IEX’s business model will work and maybe it won’t, but the S.E.C. should act in the public interest. Approval of IEX’s application will not fix America’s equity markets; it will make them less broken. The commission should not succumb to the special interests of competitors and their fellow travellers. It should approve IEX’s application and provide a real alternative for long-term investors.
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