America's newest stock exchange is undercutting rivals Nasdaq and New York Stock Exchange

  • Startup exchange IEX is looking to lure companies to list on its exchange, and is proposing a new flat fee structure for opening and closing auctions that undercuts its rivals Nasdaq and the New York Stock Exchange.
  • The exchange, which was made famous in Michael Lewis’ “Flash Boys,” recently got the regulatory green light to start listing companies on its venue.

IEX, the upstart exchange, made famous in Michael Lewis’ “Flash Boys,” got the green light in October to go after the listings businesses of rivals the New York Stock Exchange and Nasdaq.

And on Wednesday, it announced a flat fee structure for trades executed on its exchange during the market open and close, the time of day when much of US stock trading is done. It will charge $US0.0003 per share for every share traded during its IEX auction at the market open and close.

The company said it came up with the structure after making calls to “tons of brokers,” the folks who buy and sell stocks for clients, to ask them about their thoughts on the closing auction.

“The closing print is the most important, [brokers] have to be involved, but there is massive frustration with the established exchanges with how much they are charging and the way they charge,” Ronan Ryan, cofounder and president of IEX, told Business Insider.

During the market close stocks are largely traded on the exchanges on which they are listed. And according to Bats, the stock exchange acquired this year by Chicago Board Options Exchange, closing auction fees have increased by 16% to 60% at the NYSE and Nasdaq. NYSE and Nasdaq fees during this trading window vary depending on a number of factors and are higher than $US0.0003 per share.

In addition to the flat fee structure, IEX has promised to cover the listings cost of companies which announce their intent to switch over to its exchange within 120 days of the first IEX listing, according to a filing with the Securities and Exchange Commission. The company said it is set to list its first company in the first quarter of 2018.

There’s a lot riding on IEX getting companies to list on its exchange. A boost in the number of firms listed on IEX will likely translate into a boost in the amount of trading that takes place on the exchange, as stocks are more likely to trade on the exchange they are listed on. This could help boost IEX’s 2% market share. In addition, having a well-known company switch would represent an endorsement of IEX’s market model, and help further boost its visibility.

The fee structure is pending regulatory approval, and is likely to draw a response from Nasdaq and New York Stock Exchange. They have fought hard against a proposal by Bats to allow NYSE- and Nasdaq- listed securities to be matched on Bats at the end of the trading day.

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