Nasdaq Just Took a Step Toward Challenging the Flash Boys Bourse

  • CEO Greifeld sees opportunity to use stock market licenses
  • Nasdaq attempted to add programmed delay to exchange in 2012

Nasdaq Inc.’s deal to acquire Deutsche Boerse AG’s International Securities Exchange gives it another chance to bring a trading speed bump to the U.S. stock market, a move that would put it in direct competition with IEX Group Inc.’s proposed public venue.

While the New York-based exchange operator’s purchase of ISE gives it three options markets, it also snagged licenses that could be used to run more equity-trading venues. Nasdaq, which already runs three stock markets and three options exchanges, is looking to put those licenses to use "within a reasonable period of time," according to Chief Executive Officer Robert Greifeld. One avenue under consideration is a so-called speed bump to slow orders to buy and sell shares, he said.

The chance to experiment comes as the U.S. Securities and Exchange Commission decides whether to approve IEX’s application to convert its dark pool to an exchange with a 350-microsecond delay on orders. IEX, which is rapidly gaining market share, has shown that such an offering is popular among a portion of the investing community that’s worried about super-fast trading.

"We’ve been playing with this concept for the last four years and to the extent the Commission becomes more amenable to those kinds of things, we certainly will have the active license to explore," Greifeld said in a phone interview.

The idea of a speed bump isn’t unique to IEX. Nasdaq sought approval to add a programmed time delay to its PSX exchange in 2012. While IEX uses a coil of fiber-optic cable, Nasdaq’s earlier plan would have used software. The company withdrew its request based on feedback from regulators, Greifeld said. That doesn’t mean it wouldn’t try a similar model again, though Nasdaq will consider a number of different market models and not just an order delay, he said.

Fairer Market

Nasdaq said on Wednesday that it had agreed to buy ISE for $1.1 billion, a deal that will make it the largest operator of U.S. options exchanges.

IEX pitches its speed bump as a way to make markets more fair by reducing advantages that the highest-speed traders have over others. In comment letters to the SEC, critics have argued that approving its model would add unnecessary complexity to the stock market -- and even encourage companies to start competing exchanges that also impose delays. IEX spokesman Gerald Lam declined to comment on Nasdaq’s plans.

Exchange groups including Nasdaq, NYSE Group Inc. and Bats Global Markets Inc. have weighed in to the SEC saying IEX’s application should not be approved. Greifeld said on Nasdaq’s most recent earnings call that the SEC should revisit the rules that underlie the entire stock market before it approves IEX.

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