IEX is a FINRA registered alternative trading system (ATS ) operating an electronic order book trading all NMS U.S. equities. [1]

IEX is the first equities trading venue owned by the buy-side. [2] It was founded by a group of former employees from Royal Bank of Canada. The owners comprise a consortium of mutual funds, hedge funds, and individuals including employees. [3] Jim Clark, a co-founder of Netscape, is an owner and sits on the board. Other investors include large institutional players, including fund managers Capital Group Cos. which operate American Funds, and Brandes Investment Partners. [4]

Only broker-dealers can access and submit orders to the trading platform yet no broker-dealers have an ownership stake in IEX. [3] It has garnered support from Goldman Sachs and JP Morgan Chase. [5] [6]

The market garnered attention among some of the investor segments as an alternative to exchanges and other so-called dark pools that cater to high frequency trading by charging a flat fee per every 100 shares bought or sold, offering only four order types, and using a very slight delay on orders in order to level the playing field between high-speed electronic traders and others. [7] Also, IEX does not use rebates to attract orders. [8]

IEX Group has raised $75 million from firms such as Bain Capital Ventures and Spark Capital to fund its plan to apply to the U.S. Securities and Exchange Commission to become a full-fledged securities exchange. As an ATS, its market share is limited because it is not included in all smart-order routers, used by brokers to send orders to venues with the best prices. [9] If the SEC okays the plan, IEX would be the first major new stock exchange in the U.S. since BATS Global Markets launched an exchange platform in 2010. [10]

Contents

History

• Founded in March 2012. [4]
• Raised $26 million in three rounds: $1.5 million in June 2012, $9.4 million in December 2012, and $15 million in May 2013.
• Launched the IEX ATS on October 25, 2013. [4]
• For its first week of operation, IEX reported an average order size of 1,403 shares, compared to the industry average of 374. IEX reported an average aggregate fill size of 382 shares, compared to the industry average of 232. [11] Sal Arnuk, Co-Founder of Themis Trading, corroborated this number, claiming an average execution size of 400 in a Tweet on November 20th, 2013. [12]
• Traded a milestone of 20 million shares on December 19, 2013. [13]
• Saw its share of U.S. equity trading hit 1 percent for the first time on November 10, 2014. [14]

Technology

Eschewing industry norms, IEX does not offer clients the option to co-locate near its matching engine. Client servers are located in the Equinix data center in Secaucus, New Jersey, while the IEX servers are located in Weehawken, New Jersey.

This creates a roundtrip latency of 950 microseconds, designed to dissuade speed-driven trading strategies. [15]

IEX chose kdb+ software from Kx Systems for its data platform. [16]

Market Design

Orders submitted to the IEX ATS will be non-displayed — in this regard it is a dark pool. Yet, IEX anticipates providing a displayed quote in early 2014. [15]

The IEX fee structure differs from its competitors. It charges a flat fee of 9 cents per 100 shares for both buyers and sellers. It does not offer rebates for order flow. [1]

Only four order types are supported on IEX: Limit Orders, Market Orders, Midpoint Peg Orders, and IEX Check. Orders in the order book will be matched according to price-broker-time priority. Broker Priority is an order book feature that gives precedence to a broker’s own order over all other brokers’ orders at the same price. Agency and riskless principal orders receive priority over principal orders within a single broker. [1]

Transparency

Breaking from traditional disclosure practices, IEX publicly released its Form ATS, a typically private regulatory filing. [17] IEX’s Form ATS is available online on its website. [18] The document details how the market operates, including how requests to trade are prioritized, what order types are available, the market’s price structure, ways to access the market, who can access the market, and IEX’s affiliations. Some information is redacted to protect third-party service provider confidentiality.

IEX launched a How To video series to describe its market operations. The first entry is called Rest & re-allocate. [19] The second entry is Minimum Quantity Order. [20] Both are viewable on the IEX website.

Key People

• Brad Katsuyama. President & CEO
• Ronan Ryan. Chief Strategy Officer
• Rob Park. Chief Technology Officer
• John Schwall, Chief Operating Officer
• Donald Dollerman, Head of Market Operations
• Zoran Perkov, Head of Technology Operations
• Matt Trudeau, Head of Product
• Jay Fraser, Head of Business Development
• John Ramsay. Chief Market Policy and Regulatory Officer

The team is a mix of technologists and market structure experts from the sell side. exchanges, ATS’s and high-frequency trading firms.

Flash Boys

On March 30, 2014, IEX CEO Brad Katsuyama was featured in a segment on CBS News’ 60 Minutes program. The segment aired ahead of the release of Flash Boys, a book by Michael Lewis that called the U.S. stock market rigged and that high-frequency traders engage in a form of legal front-running . [21] The 60 Minutes piece detailed the events that led to Katsuyama’s departure from the Royal Bank of Canada and his founding of IEX. [22]

View the 60 Minutes Video