‘Flash Boys’ Crusaders Seen Reaching Sixth Place Among Exchanges

  • Analyst sees IEX ‘significant achievement’ despite small size
  • CEO Katsuyama wants to steal business from NYSE, Bats, Nasdaq

IEX Group Inc. could triple its share of U.S. trading after converting its dark pool into an official stock exchange, according to an analyst.

Poised to open in mid-August, Investors Exchange may handle 2 percent to 5 percent of volume within the next five years, Weeden & Co.’s Andrew Upward estimated. In June, IEX’s current venue handled about 1.6 percent of trading.

Hitting 5 percent “would be a significant achievement even if it doesn’t seem like a very big number on its face,” Upward wrote in a report Thursday. “Even if IEX were to get to just 2 percent market share on a consistent basis, we wouldn’t count it as a failure.” Although the four exchanges Bats Global Markets Inc. owns have captured significant share over the past decade, IEX’s growth may be limited because “there’s no obvious victim for IEX to feast on -- none that we can see anyway,” he said.

IEX Chief Executive Officer Brad Katsuyama wants to transform financial markets by slowing things down, something the company believes will make trading more fair, and in the process grow significantly. Their crusade was made famous in Michael Lewis’s “Flash Boys.” IEX has argued it can expand more by being a public exchange rather than a private dark pool.

Last week, Katsuyama told Bloomberg Television he’s “confident that we can become one of the largest markets.” A 5 percent market share would lag behind the roughly two-thirds controlled by the incumbent exchanges it’s trying to undermine. At that size, the IEX market would be the sixth-biggest exchange, based on current volume.

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