NYSE Goes From Fan to Critic of IEX, Bashes `Unfair' Plan

  • With a `Seinfeld' reference, exchange joins other detractors
  • Contrasts with Sprecher's prior praise for IEX and its CEO

The New York Stock Exchange blasted IEX Group Inc.’s proposal to convert into a full-fledged exchange, calling it unfair and insufficiently documented.

“Like the ‘non-fat yogurt’ shop on Seinfeld, which actually serves tastier, full-fat yogurt to increase its sales, IEX advertises that it is ‘A Fair, Simple, Transparent Market,’ whereas it proposes rules that would make IEX an unfair, complex, and opaque exchange,” according to a NYSE letter dated Nov. 12 on the U.S. Securities and Exchange Commission’s website.

IEX’s founders argue their company is an antidote to unfair practices in the U.S. stock market, including purported advantages enjoyed by the fastest traders. Created as a so-called alternative trading system, the New York-based company wants to become an exchange -- which carries a series of competitive advantages and obligations.

The NYSE critique contrasts with public praise from Jeff Sprecher, the chief executive officer of NYSE’s owner, Intercontinental Exchange Inc. “I admire what they’ve done,” Sprecher told attendees of a conference in June 2014. Sprecher offered to buy IEX for the firm’s technology and CEO Brad Katsuyama’s expertise, Bloomberg News reported last year.

Gerald Lam, an IEX spokesman, declined to comment on the NYSE letter, though he said the company looks “forward to submitting our response letters to material comments, including clearing up any confusion about how our market works.”

Magic Shoebox

NYSE said that IEX’s application didn’t provide enough information on one of its key features, its “magic shoebox” that delays orders by 350 microseconds to blunt high-frequency traders’s purported advantages. The letter said IEX needs to clarify how exactly the delay would work if the company becomes an exchange, and demanded more information on whether all market information, including requests to cancel or modify orders, would be delayed. NYSE also fretted that IEX’s affiliated broker may not be subject to the same delay, giving it an information advantage over other participants.

NYSE compared this unfairness to putting unequal restrictions on drivers on
Germany’s high-speed highway, the Autobahn.

“While it may be reasonable to be concerned about the speed of cars on the Autobahn, requiring only some cars to slow down and/or turn off their lights would not create a safer Autobahn, it would create a calamity,” NYSE said in the letter.

The letter comes as competitor exchanges Nasdaq Inc. and Bats Global Markets Inc. as well as other market players including Citadel LLC have protested IEX’s application for a lack of clarity, particularly around whether its magic shoebox is allowable given existing market regulations.

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