• Cautions against `patchwork' approach to regulating markets
  • Nasdaq proposed a five-millisecond delay on PSX venue in 2012

Robert Greifeld, chief executive officer of Nasdaq Inc., said the rules governing the U.S. stock market need to be changed before dark pool operator IEX Group Inc. can convert into a full-fledged exchange.

IEX’s proposal to operate a stock exchange with a fraction-of-a-second delay on orders has stoked a heated debate, with electronic trading firms, exchanges, banks and individual investors all weighing in to regulators.

Greifeld’s take on the brouhaha: Before IEX can be approved, the U.S. Securities and Exchange Commission needs to focus on overhauling a key piece of regulation that proved to be a hurdle when Nasdaq tried opening its own exchange with a programmed delay in 2012.

“With respect to IEX, our position is that it’s thoughtful, could be innovative and is very similar to what we had suggested to the commission back in 2012,” Greifeld said on a quarterly earnings call Thursday.

Regulation NMS, an SEC rule that took effect in 2007, mandates that stock trades occur on whatever market has the best price at a given time. It’s been credited with helping reduce trading costs, though some blame it for making the stock market too complex.

Right now, IEX is a dark pool, but it wants to become an exchange. It slows all incoming and outgoing orders by 350 microseconds. Nasdaq told the SEC in November that it should carefully consider whether it would be fair for an exchange to impose such a delay.

The issue hits home for Nasdaq, which asked for permission to add a time delay to one of its own exchanges, PSX, in 2012. Unlike IEX’s delay, caused by a physical coil of fiber-optic cable, the proposed five-millisecond delay for PSX would have been programmed into software. The exchange group ultimately withdrew its request for the delay on PSX following feedback from regulators.

“They told us it was not in either the letter or the spirit of Reg NMS, so we could not do it,” Greifeld said on the earnings call. “So our position with IEX is that it really should be after there is a rethink of Reg NMS, and how we get the new market structure in place, and let innovation develop under the new set of rules, and not patchwork and try to get exceptions under the existing rules.”

During a phone interview following the earnings call, Greifeld said, “Time marches on and it’s time to rethink Reg NMS.”

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