IEX Group, the stock-trading venue at the center of Michael Lewis’ book “Flash Boys,” is applying to become a stock exchange, and the application has divided Wall Street.
Now Modern Markets Initiative, an industry body that advocates for high frequency trading, has responded, arguing that the IEX’s application should be “rejected on principle.”
That MMI opposes the IEX application should not be surprising. The two are on opposite sides of the debate over the virtues and pitfalls of high speed trading. IEX, led by Brad Katsuyama, uses a 350-microsecond “speed bump” which is says levels the playing field between hyperfast traders and ordinary traders.
It even frames its application around the question of whether the national market system should allow an exchange to “counteract the more pernicious aspects of speed-based trading.”
The MMI, in response, asks “what pernicious trading?”
By its stated premise, IEX creates a burden of proof it fails to meet. It does not provide any data establishing the presence of “pernicious aspects of speed-based trading” that should compel the Commission to allow exchanges to adopt “any means” to remedy them. At its thesis, this Application demonizes high frequency trading while providing no basis for its conclusions.”
Later, it said (emphasis ours):
IEX is free to compete and offer innovation to the marketplace. Several MMI Members trade on IEX and, similar to what HFT firm Virtu has stated, engage in the same market making strategies on IEX as on automated trading systems run by other broker-dealers. However, when any firm petitions the Commission with a proposal to use extraordinary means to counteract harm to investors it cannot prove exists, we believe the application should be rejected on principle.