IEX Group Gains Approval for Stock Exchange (opens in new tab)

> you cannot buy or sell stock on someone else's behalf unless you check with all major US stock exchanges first to verify that you are getting your client the best price

It's not just trading on behalf of a client. Even if you're trading directly for yourself, you're still legally obligated not to "trade-through" a displayed price. The idea is to protect the person who placed the displayed order, not yourself or your client.

> IEX intentionally, massively delays answering back unless you pay them buckets of money

You can't pay them to avoid the delay. They delay all outgoing direct-to-trader information and all incoming orders or cancels.

The difference between what IEX does and just placing your stock exchange 38 miles from everyone else's (350us at light speed in fiber) is that while they delay incoming orders and outgoing data, IEX itself listens to data coming in from other exchanges with no delay, and uses that 350us look into the future to re-price orders before anyone else can interact with them.

What are those buckets of money?

Also, IEXs delay is less than the delay between existing exchanges because of speed of light limits, so massively seems inappropriate.

> By law, you cannot buy or sell stock on someone else's behalf unless you check with all major US stock exchanges first to verify that you are getting your client the best price.

The side-effects of this law and because of it not being able to achieve a 'fair' price was why IEX was created.

Edit: This is neither a pro nor anti comment. It is a factual comment, of the motivation to create IEX.

It may seem counter-intuitive, but...yes?

Small investors benefit from HFT and related technologies, which is why, eg, Vanguard is pro-HFT. Investment banks are harmed by it, which is why, eg, Goldman is anti-HFT.

Liquidity in instruments other than equities (options/futures/futures options) is getting worse, not better. Wider spreads and less liquid markets actually do disproportionately affect smaller investors who are doing anything other than straight equity buying and selling. HFT isn't hurting liquidity and isn't nearly the problem it once was, and this doesn't do anything to address the actual problems in dark pools or auctions or the non-transparent part of the market.

Well to be fair, those were Michael Lewis's second hand telling. I personally know the author of FB:NSF, but haven't spoken to him in a while. I think I agreed with 95% of what he wrote. I think IEX will likely stumble, but will continue. The problem is not that IEX is doing something bad, but they're just not different enough to be meaningful. They have been very good at marketing though and brought up a lot of issues, but definitely raised some that are not accurate.

The unfortunate problem (that's hard to resolve) is those executing on agency will always be at a disadvantage to those executing on principal. For example if someone wants to buy 5000 shares, they can route in a way that risks them buying 8000 to get better prices (by sending extra orders to dark pools, etc), someone executing on agency can never do that and so it might not make sense for them to route to dark pools, but almost all of the routers do that (fidelity, schwab, etc) so they disadvantage some of their customers (although they do advantage the smallest customers). Basically I think ultimately the reg-nms order protection is probably a little too rigid of a structure to fit the diversity of behavior into. I'm not really sure what they're long term hope is. I do find equities to be basically the most fair trading ground on the exchange (which is why they had any foothold at all). It would be nice if they were trying to disrupt the really expensive trading markets like fixed income where the spreads are much wider compared to the risk being exchanged and the dealers have so much leverage that they won't support anybody who is trying to cut into that spread.

It is mostly complete BS. They can't even begin to stop the numerous ways that HFT and sophisticated traders can play with the market, and are putting substantial road blocks that will actually decrease liquidity and increase complexity at the exchange level for basically no reason because of reg NMS integration.

When writing a comment about the blockchain, it's always useful to mentally replace it with the words "distributed database", and see if still makes sense.

"If the goal is to avoid high-frequency trading, why not use a distributed database"? Maybe because that would have absolutely zero impact whatsoever on high-frequency trading?

(Also, the goal isn't really to avoid high-frequency trading, and it's quite likely IEX will create more opportunities for high-frequency trading, not fewer, but that's another matter.)

What specific aspect of blockchain technology?

It's slowness?

The transparency of the consolidated order book?

I place orders on Counterparty a lot, which offers a decentralized asset exchange that settles to the bitcoin blockchain. It would be nice settle stock trades on something like that, slow, too slow, but it would be a nice option.

Not the simplest way to solve the problem. May have many other effects.

The IEX delay is uniform and deterministic, so if you're faster than your competitors by 1 microsecond in sending an order to IEX in response to an external event, you still win. The race that you can't win anymore is with IEX's pegged orders, which re-price without the delay (but they're always non-displayed).