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Investors Exchange (IEX) is a
stock exchange A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for the ...
in the United States. It was founded in 2012 in order to mitigate the effects of
high-frequency trading High-frequency trading (HFT) is a type of algorithmic financial trading characterized by high speeds, high turnover rates, and high order-to-trade ratios that leverages high-frequency financial data and electronic trading tools. While there is no ...
. IEX was launched as a national securities exchange in September 2016. On October 24, 2017, it received regulatory approval from the
U.S. Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
(SEC) to list companies. IEX listed its first public company,
Interactive Brokers Interactive Brokers LLC (IB) is an American multinational brokerage firm. It operates the largest electronic trading platform in the U.S. by number of daily average revenue trades. The company brokers stocks, options, futures, EFPs, futures o ...
, on October 5, 2018. The exchange said that companies would be able to list for free for the first five years, before a flat annual rate of $50,000. On September 23, 2019, it announced it was leaving its listing business. In September 2019, IEX announced that its co-founder and COO, John Schwall, would retire from the company by the end of 2019. The genesis and early days of the exchange are chronicled in the 2014 book '' Flash Boys: A Wall Street Revolt'' by
Michael Lewis Michael Monroe Lewis (born October 15, 1960) Gale Biography In Context. is an American author and financial journalist. He has also been a contributing editor to '' Vanity Fair'' since 2009, writing mostly on business, finance, and economics. H ...
.


History


Founding and first trading

Founded in 2012 and started by Brad Katsuyama and Ronan Ryan, IEX opened for trading on October 25, 2013. The company’s offices are located at
3 World Trade Center 3 World Trade Center (3 WTC; also known as 175 Greenwich Street) is a skyscraper constructed as part of the new World Trade Center in Lower Manhattan, New York City. The tower is located on Greenwich Street along the eastern side of the World ...
in
New York City New York, often called New York City or NYC, is the List of United States cities by population, most populous city in the United States. With a 2020 population of 8,804,190 distributed over , New York City is also the L ...
. The matching engine is located across the
Hudson River The Hudson River is a river that flows from north to south primarily through eastern New York. It originates in the Adirondack Mountains of Upstate New York and flows southward through the Hudson Valley to the New York Harbor between New ...
in
Weehawken, New Jersey Weehawken is a township in the northern part of Hudson County, in the U.S. state of New Jersey. It is located largely on the Hudson Palisades overlooking the Hudson River. As of the 2020 United States census, the population was 17,197.
, and the initial
point of presence A point of presence (PoP) is an artificial demarcation point or network interface point between communicating entities. A common example is an ISP point of presence, the local access point that allows users to connect to the Internet with their ...
is located in a data center in
Secaucus, New Jersey Secaucus ( ) is a town in Hudson County, New Jersey, United States. As of the 2010 United States census, the town's population was 16,264, IEX's main innovation is a coil of
optical fiber An optical fiber, or optical fibre in Commonwealth English, is a flexible, transparent fiber made by drawing glass (silica) or plastic to a diameter slightly thicker than that of a human hair. Optical fibers are used most often as a means t ...
placed in front of its trading engine. This additional length of cable results in a 350 microsecond delay, referred to as a "speed bump". The round-trip delay of 0.0007 seconds is designed to negate the certain speed advantages utilized by some high-frequency traders. This method was subsequently implemented by competing stock exchange
NYSE American NYSE American, formerly known as the American Stock Exchange (AMEX), and more recently as NYSE MKT, is an American stock exchange situated in New York City. AMEX was previously a mutual organization, owned by its members. Until 1953, it was known ...
in response to the SEC approval of IEX. The exchange's market session runs from 9:30 am to 4:00 pm Eastern Time. In 2020, Caisse de dépôt et placement du Québec made a strategic investment in IEX Group.


Federal approvals

The SEC approved IEX to be an official exchange on June 17, 2016. In late 2016, IEX hired Sara Furber to lead its listing effort. A former managing director at
Morgan Stanley Morgan Stanley is an American multinational investment management and financial services company headquartered at 1585 Broadway in Midtown Manhattan, New York City. With offices in more than 41 countries and more than 75,000 employees, the f ...
, she reported to Katsuyama. The company aimed to start listing companies in 2017. After a 13-month wait, on October 24, 2017, IEX Group Inc. received regulatory approval from the SEC to list companies. IEX said it would begin listings in early 2018, with a focus on having companies switch over from other stock exchanges by undercutting the listing fees of rivals. The exchange said that companies would be able to list for free for the first five years, before a flat annual rate of $50,000. In comparison,
NYSE The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District of Lower Manhattan in New York City. It is by far the world's largest stock exchange by market capitalization of its listed ...
had annual listing fees as high as $500,000 and
Nasdaq The Nasdaq Stock Market () (National Association of Securities Dealers Automated Quotations Stock Market) is an American stock exchange based in New York City. It is the most active stock trading venue in the US by volume, and ranked second ...
up to $155,000. The ''Wall Street Journal'' wrote that the approval paved "the way for the first competition to the New York Stock Exchange and Nasdaq Inc. in nearly a decade... Companies seeking to list their shares on a U.S. exchange haven’t had a choice besides NYSE or Nasdaq since 2008, when the
American Stock Exchange NYSE American, formerly known as the American Stock Exchange (AMEX), and more recently as NYSE MKT, is an American stock exchange situated in New York City. AMEX was previously a mutual organization, owned by its members. Until 1953, it was known ...
was acquired by NYSE." Only
Wynn Resorts Wynn or wyn (; also spelled wen, ƿynn, and ƿen) is a letter of the Old English alphabet, where it is used to represent the sound . History The letter "W" While the earliest Old English texts represent this phoneme with the digraph , ...
Ltd. said publicly that it was considering a listing on IEX at the time of the approval announcement, with IEX not releasing more details on listings.


Exchange features


Operating principles

IEX was created in response to questionable trading practices that had become widely used across traditional public
Wall Street Wall Street is an eight-block-long street in the Financial District of Lower Manhattan in New York City. It runs between Broadway in the west to South Street and the East River in the east. The term "Wall Street" has become a metonym for t ...
exchanges as well as
dark pool In finance, a dark pool (also black pool) is a private forum ( alternative trading system or ATS) for trading securities, derivatives, and other financial instruments.alternative trading system Alternative trading system (ATS) is a US and Canadian regulatory term for a non-exchange trading venue that matches buyers and sellers to find counterparties for transactions. Alternative trading systems are typically regulated as broker-dealers r ...
s. The IEX exchange aims to attract investors by promising to "play fair" by operating in a transparent and straightforward manner, while also helping to level the playing field for traders. Strategies to achieve those goals include: * Publishing the matching rules used in the exchange's computerized order matching engine. * Offering a limited number of simple and familiar order types. * Charging fixed fees on most orders (or a flat percentage rate on small orders). * Ensuring market pricing data arrives at external points of presence simultaneously. * Slightly delaying market pricing data to all customers (no colocation). * Refusing to pay for order flow. These strategies are intended to ensure the trustworthiness of the exchange. A few dark pools are owned by trading companies that pay for certain types of orders to allow them to fill orders within the pool, rather than routing orders to public exchanges. IEX offers no rebates for orders, and only charges a flat fee of $0.0009 per share on trades executed within the dark pool (or 0.30% with shares worth less than $1.00). Trades forwarded to other
trading venue An exchange, bourse (), trading exchange or trading venue is an organized market where (especially) tradable securities, commodities, foreign exchange, futures, and options contracts are bought and sold. History 12th century: Brokers on the ...
s are charged a lower rate. IEX has five order types: market, limit, primary peg (pegged to national best bid/offer), midpoint peg and patent-pending discretionary peg. IEX discretionary peg is a primary peg that may execute at up to midpoint price when the quote is stable. A few optional parameters can be attached to the orders, leaving IEX with many fewer order types than most other exchanges. IEX delays the flow of data from the exchange and ensures that it arrives simultaneously at two points of presence in New Jersey. Traders are not allowed to co-locate equipment adjacent to IEX's own servers, unlike many other trading platforms. IEX has its own low-latency links to other trading venues in the New York region, which it can use to execute trades for customers in under 320 microseconds. The point-of-presence links for traders to gain access to IEX have a built-in, round-trip delay of 700 microseconds from a 38-mile coil of fiber, so traders cannot beat IEX's own computers as orders propagate outward. The data delay prevents many predatory behaviors. It deters the practice of liquidity fading, where they peer into various trading venues and try to detect orders as they propagate from a broker's order router, and use this information to withdraw liquidity ahead of toxic order flow.


Market share (in percent)


(Source
IEX


Broker priority

Before becoming an exchange, IEX operated a dark pool which did not adhere entirely to priority by price then time, unlike other U.S. trading venues. Instead, the IEX prioritized orders by price, followed by broker and, lastly, time. Katsuyama argues that this arrangement advantages regular investors contrarily to high frequency trading (HFT) firms, by preventing, for instance, HFT firms from jumping to the top of the order queue and
front running Front running, also known as tailgating, is the prohibited practice of entering into an equity (stock) trade, option, futures contract, derivative, or security-based swap to capitalize on advance, nonpublic knowledge of a large ("block") pendin ...
normal investors. When IEX applied for exchange status, it dropped the broker-based priority mechanism and as an exchange it gives priority to the best price first followed by the time of order submittal (as do other exchanges).


Liquidity

Michael Lewis' book, ''Flash Boys'', focused on the new trading platform, arguing that it was better than other dark pools since it created an equal playing field for investors by slowing down trading and preventing HFT firms from front running orders. An advocacy group for high-frequency traders countered that liquidity-provider firms need speed and direct market connectivity to manage risk, and a market that limits speed, such as IEX, would be illiquid and expensive for
price discovery In economics and finance, the price discovery process (also called price discovery mechanism) is the process of determining the price of an asset in the marketplace through the interactions of buyers and sellers. Overview Price discovery is dif ...
.


IEX Cloud

IEX also offers an API service, allowing developers to query US and Canadian stock data.


Key people

* Brad Katsuyama (CEO) * Ronan Ryan ( president)


See also

*
List of stock exchanges This is a list of major stock exchanges. Those futures exchanges that also offer trading in securities besides trading in futures contracts are listed both here and in the list of futures exchanges. There are sixteen stock exchanges in the worl ...
*
List of stock exchanges in the Americas This is a list of active stock exchanges in the Americas. Stock exchanges in Latin America (where Spanish and Portuguese prevail) use the term ''Bolsa de Valores'', meaning "bag" or "purse" of "values". (compare Börse in German or bourse i ...


References


External links

* {{authority control Stock exchanges in the United States Private equity portfolio companies American companies established in 2012 2012 establishments in New York City Privately held companies based in New York City Economy of New York City Financial services companies established in 2012 Financial services companies based in New York City