Nasdaq Hints at Court Battle With SEC Over IEX’s Application

  • Exchange says courts would reject a recent move by regulators
  • Raises stakes in battle over IEX’s 350-microsecond speed bump

Nasdaq Inc. fired a warning shot at regulators considering IEX Group Inc.’s plan to convert into an official U.S. stock exchange, arguing that a legal challenge to an approval would probably succeed.

IEX wants to introduce the 13th U.S. stock exchange, but one with a key difference: a 350-microsecond speed bump that the company argues makes trading more fair. Securities rules require exchanges to make their price quotes immediately available to traders. In a recent proposal, the Securities and Exchange Commission suggested delays of less than 1 millisecond -- or almost three times longer than IEX’s lag time -- meet that standard.

“The proposed interpretation would be unlikely to survive judicial scrutiny,” Amir Tayrani, an attorney for Nasdaq at Gibson Dunn & Crutcher LLP, wrote in a letter Thursday. “The Commission lacks the authority to approve IEX’s pending application.”

Nasdaq’s latest move ups the ante in a months-long debate over IEX’s application, which the SEC is due to rule on by June 18. While Nasdaq, NYSE Group Inc. and Citadel Securities have each written multiple letters urging the SEC to reject the application, Nasdaq’s letter is the first with an implied threat of legal action.

Joe Christinat, a spokesman for Nasdaq, declined to comment on whether the exchange would sue the SEC if IEX’s application were approved.

“The incumbent exchanges have lost the debate on the merits and Nasdaq’s latest salvo is more saber rattling in an effort to stave off competition at all costs,” John Ramsay, chief market policy officer at IEX, said in an e-mailed statement. Ramsay used to work at the SEC.

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