• Firm sends second letter to SEC critiquing IEX's proposal
  • IEX has vowed to diminish advantages held by speed traders

Citadel LLC is stepping up its criticism of IEX Group Inc., arguing that the company’s plans to start an exchange that tries to level the playing field between firms with the fastest technology and other traders will actually hurt stock markets.

In its second letter to U.S. regulators on IEX’s proposal, Citadel said the exchange application lacks sufficient information and could “harm market quality.” Citadel took particular exemption with the disclosure around IEX’s trademark “speed bump,” a coil of wire purported to prevent faster traders from taking advantage of slower ones by delaying all incoming and outgoing orders by a fraction of a second.

“Regardless of how many times IEX uses the terms ‘simple’ and ‘transparent’ in its marketing, IEX’s proposed structure will harm the ‘investors’ that IEX purports to champion,” Citadel, a big market maker and hedge fund that engages in high-frequency trading, said in its letter Monday to the Securities and Exchange Commission. 

Citadel’s latest critique comes amid a flurry of letters to the SEC from academics, exchanges and market makers on IEX’s plan to form a public trading venue that will compete with the New York Stock Exchange and Nasdaq Stock Market. IEX has countered that its exchange would be an antidote to unfair practices that allow the fastest firms to get an advance look at market-moving orders and trade ahead of them.

IEX has sent two letters of its own to the SEC, defending its proposal and accusing detractors, including NYSE and Nasdaq, of trying to protect a business model that does not put investor interests first. The SEC must approve the company’s plan for it to start operating a full-fledged exchange.

Citadel’s letter said that the SEC should require IEX to resubmit its application to “fully and fairly describe its system.”

Gerald Lam, a spokesman for IEX, declined to comment.

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