The New York Stock Exchange is planning a direct challenge to its smaller rival IEX with a “speed bump” at one of its trading venues, in the latest example of ways that participants in the world’s largest equity market are experimenting with speed.
NYSE intends to apply to regulators to allow a delay of 350 microseconds to trades on its NYSE MKT exchange for small and mid-cap companies, NYSE said on Wednesday, in a move that underscores a significant shift in thinking by US exchanges in the past year.
For the past two decades, customer demand and regulatory requirements have created an arms race to be the fastest venues on the Street.
The dominance of this philosophy was jolted last year when IEX, a small off-exchange venue, successfully lobbied to introduce a 350 microsecond “speed bump” meant to level the playing field for other investors at the expense of high-speed traders that dominate daily market trading in the US.
Rivals see US regulators’ approval of IEX’s delay last year as an invitation to try new speed models. NYSE is unique in that it aims to compete head-on with IEX, whose market share has languished at about 2 per cent despite its transformation from a dark pool to a fully regulated exchange, with an identical delay of 350 microseconds.
NYSE’s decision to go into direct competition with IEX comes after it was a vocal opponent of IEX’s regulatory application, when the chief executive of Intercontinental Exchange, NYSE’s parent company, labelled it as “un-American, unfair and not the way that our system should work”.
On Wednesday, Stacey Cunningham, NYSE’s chief operating officer, said: “We opposed the IEX application because they were looking for an exception to a rule in an isolated case that would only apply to them.”
IEX’s approval has since opened the door for competition.
Tom Farley, NYSE’s president, said markets were becoming increasingly fragmented and noted that NYSE would now operate four distinct equity exchanges.
“We recognise certain market models are appropriate for exchange traded funds or less liquid securities, and we are excited to provide our customers with more choice in how they list, invest and trade,” he said.
NYSE’s new speed bump would be only on one venue, which will be renamed NYSE American.
“While we’re flattered by the imitation, investor protection is a philosophy, not a single product or order type,” an IEX spokesperson said. “NYSE could improve the markets by consolidating their venues, eliminating maker-taker rebates, and scrapping superfluous order types and excessive data and co-location fees — but to do so would hurt their bottom line.”
Some market participants argued that approval of IEX would lead to a flood of similar offerings. Competitor Nasdaq has lodged an application for a new order type that would give priority to retail orders seen by the whole market when traders agree not to cancel them for at least one second.
The Chicago Stock Exchange, another small US stock exchange, has also applied for a 350 microsecond delay, but says it would only apply it to trades that would be able to execute on resting orders, or in market parlance, “take liquidity”.