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CNBC Exclusive: CNBC Transcript: IEX President & CEO Brad Katsuyama Speaks with Eamon Javers Today on CNBC's "Fast Money Halftime Report"

WHEN: Today, Thursday, May 29th

WHERE: CNBC's "Fast Money Halftime Report"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Brad Katsuyama, IEX President & CEO. Video from the interview is available on CNBC.com.

All references must be sourced to CNBC.

SCOTT WAPNER: WELCOME BACK. IT WAS JUST ABOUT TWO MONTHS AGO NOW THAT IEX FOUNDER BRAD KATSUYAMA GOT INTO A HEATED DEBATE RIGHT HERE ON CNBC, WHEN HE CLAIMED THE STOCK MARKET IS RIGGED BY HIGH FREQUENCY TRADERS. FOR THE FIRST TIME SINCE THEN, MR. KATSUYAMA IS BACK IN AN EXCLUSIVE INTERVIEW. OUR EAMON JAVERS JOINS US NOW WITH MORE.

EAMON JAVERS: THANKS, SCOTT. AND BRAD, THANK YOU VERY MUCH FOR BEING HERE. WE APPRECIATE IT. LAST TIME YOU WERE ON CNBC, YOU CAUSED A LITTLE BIT OF A STIR. BUT I'M WONDERING WHAT THE IMPACT HAS BEEN FROM "FLASH BOYS" AND ALL THE PUBLICITY AND ALL THE HOOPLA SINCE THEN. HOW IS YOUR BUSINESS DOING, HOW IS THE COMPANY?

BRAD KATSUYAMA: SURE, YEAH. BUSINESS IS GOING GREAT. WE DOUBLED MARKET SHARE KIND OF SINCE THE BOOK. WE CONTINUE TO HAVE REQUESTS, ENDLESS REQUESTS, FOR MEETINGS. WE'VE HAD THOUSANDS OF E-MAILS, CALLS. WE'RE SITTING ON AROUND I THINK OVER 1,000 RESUMES. SO IT'S BEEN A REALLY POSITIVE RESPONSE. PART OF IT NOW, IS JUST IF THIS IS A MARATHON, WE'RE PROBABLY IN THE SECOND OR THIRD MILE. IT'S A LONG ROAD. BUT WE'RE VERY ENCOURAGED BY KIND OF WHERE WE ARE RIGHT NOW.

JAVERS: I'VE BEEN TALKING TO SOME OF YOUR CRITICS, AND YOU DO HAVE SOME CRITICS. A LOT OF WHOM EXPRESSED VEHEMENT VIEWS AFTER THAT INTERVIEW ON CNBC. ONE ON THE QUESTIONS THAT A CRITIC RAISED TO ME WAS THAT IEX HAS SOMETHING CALLED BROKER PRIVILEGE.

KATSUYAMA: YEAH.

JAVERS: IN WHICH BROKERS ARE ALLOWED TO ACTUALLY JUMP THE QUEUE AS THEY'RE EXECUTING ON TRADES. AND THIS BROKER PREFERENCE PROCESS THIS CRITIC SAYS IS SOMETHING THAT IS REALLY A PROBLEM IN HIS VIEW BECAUSE PEOPLE ARE GETTING AHEAD OF EVERYBODY ELSE IN LINE. EXPLAIN THAT BECAUSE THAT IS ONE OF THE BIG CRITICISMS OF IEX.

KATSUYAMA: SURE, YEAH. SO THE PROCESS IS CALLED BROKER PRIORITY. AND WHAT IT MEANS THAT IF A BROKER, LET'S SAY THAT IS THIRD IN LINE ON THE BID, IF THAT SAME BROKER CATCHES A SELLER THAT IS ABOUT TO SELL STOCK ON THE BID, THE BUYER WHO IS THIRD IN LINE, THAT BROKER, WILL JUMP TO THE TOP OF THE QUEUE AND WILL TRADE WITH THE SELLER. THE GOAL OF BROKER PRIORITY IS REALLY TO HELP BROKERS WHO HAVE EARNED BOTH SIDES OF THE TRADE TO INTERNALIZE AND INTERNALIZE HAPPENS ON IEX.

JAVERS: IS THAT FAIR, THOUGH, TO THE OTHER FOLKS WHO ARE GETTING JUMPED AHEAD OF IN LINE?

KATSUYAMA: WELL I THINK, YOU KNOW, IF WE WERE THE ONLY MARKET OUT THERE, IF WE HAD 100% OF THE VOLUME, I COULD SEE THE CASE AGAINST IT, SAYING THAT IT FAVORS BIGGER BROKERS. NOW WHAT IS GOING TO HAPPEN IF YOU DON'T GIVE THE BROKER WHO HAS BOTH THE BUYER AND SELLER THE CHANCE TO DO THAT, THEY ARE GOING TO CREATE THEIR OWN PRIVATE MARKET TO DO IT. RIGHT? THEY ARE GOING TO CREATE THEIR OWN DARK POOL AND WITHHOLD ORDERS FROM THE OPEN MARKET AND LOOK TO DO IT THERE. SO THE PERFECT EXAMPLE IN KIND OF WHERE WE SAW THIS IS THE TORONTO STOCK EXCHANGE HAS BROKER PRIORITY. NO BIG CANADIAN BANK HAS A DARK POOL BECAUSE THEY REALIZE THEY CAN INTERNALIZE ON THE EXCHANGE. NOW THE ISSUE WITH THE CRITICISM IS THAT REALLY RIGHT NOW IT'S 2 TO 3% OF OUR TOTAL VOLUME. THE INSTANCES WHERE THIS IS HAPPENING IS VERY SMALL. THE OTHER PART TOO IS THAT WHEN THE BROKER RISES TO THE TOP, THE AGENCY ORDER, REGARDLESS OF WHEN IT CAME IN, WILL ALWAYS TRADE FIRST.

JAVERS: BUT CRITICS SAY THAT THIS IS SOMETHING THAT IS NOT DONE ANYWHERE ELSE INSIDE THE UNITED STATES. YOU MENTIONED CANADA.

KATSUYAMA: SURE.

JAVERS: DO YOU THINK THE S.E.C. WILL APPROVE IT IF YOU BECOME AN EXCHANGE? THAT HAS BEEN YOUR STATED GOAL, RIGHT?

KATSUYAMA: SURE, YEAH. ABSOLUTELY. SO I THINK THAT, YOU KNOW, I THINK THERE IS A VERY STRONG CASE FOR IT TO STAY. I THINK WHEN THERE ARE 57 PLACES TO TRADE, YOU'RE GIVING PEOPLE CHOICE. THEY HAVE ALLOWED OTHER EXCHANGES TO KIND OF, YOU KNOW, ADJUST THEIR PRIORITY RULES. SO I THINK THERE IS A STRONG CASE GIVEN HOW FRAGMENTED THE MARKET IS TO GIVE BROKERS THE OPPORTUNITY TO INTERNALIZE ON THE VENUE. AND JUST FROM AN IEX STANDPOINT, WHEN THAT TRADE HAPPENS BROKER TO BROKER, IT'S FREE. THERE IS REALLY NO ECONOMIC INCENTIVE FOR US TO ENCOURAGE THIS. REALLY WHAT IT'S TRYING TO DO IS REDUCE FRAGMENTATION. SO THERE IS A VERY LEGITIMATE MARKET REASON FOR HAVING THEM.

JAVERS: LET'S HAVE SCOTT BACK IN HQ GET IN HERE. SCOTT, I KNOW YOU HAVE A QUESTION.

WAPNER: I DO. BRAD, IT IS NICE TO HAVE YOU ON THE PROGRAM TODAY. AND IT'S INTERESTING LISTENING TO THE WAY YOU'RE DESCRIBING WHAT YOU ARE WITH EAMON HERE, BECAUSE WHAT I HEAR IS THAT THERE ARE CERTAIN PEOPLE WHO HAVE AN ADVANTAGE. AN ADVANTAGE IS DIFFERENT THAN THE SYSTEM ITSELF BEING RIGGED. AND I'M JUST WONDERING IN THE LAST COUPLE OF MONTHS WITH ALL OF THE FIRESTORM AFTER CLAIMING THAT THE MARKETS ARE RIGGED, WHETHER YOU REGRET USING THAT WORD AND YOU WOULD DESCRIBE IT DIFFERENTLY OR YOU WOULD CHANGE THE WAY YOU SPOKE ABOUT IT KNOWING NOW HOW THIS WHOLE THING HAS DEVELOPED.

KATSUYAMA: SURE, YEAH. YOU KNOW I THINK WHAT THE ISSUE WITH THE WORD RIGGED IS THAT I GAVE CRITICS AND GAVE PEOPLE THAT WERE PART OF THE PROBLEM A VERY EASY OUT. ALL THEY HAD TO SAY WAS THE MARKET IS NOT RIGGED. THAT IS NO DEFENSE. I MEAN REALLY WHAT WE SAID IS THERE ARE SYSTEMIC DISADVANTAGES IN THE MARKET. PEOPLE ARE SYSTEMICALLY DISADVANTAGED. SO NO ONE HAD TO ANSWER THAT CRITIQUE OF THE MARKET. THEY JUST HAD TO SAY THE MARKET IS NOT RIGGED. SO I THINK WHAT IT DID IS IT DIS DISTRACTED AND IT SHIFTED THE CONVERSATION OVER, IS THE MARKET RIGGED OR NOT WHEN REALLY THE CORE OF WHAT WE WERE TRYING TO SAY WAS THAT THERE ARE BUILT-IN SYSTEMIC DISADVANTAGES AND THOSE ARE THE PROBLEMS. SO I THINK THAT, YOU KNOW, THE FACT THAT IT SHIFTED THE CONVERSATION AWAY FROM THE CORE PROBLEMS ARE, YOU KNOW, NOW IT'S OUR JOB TO SHIFT IT BACK. BECAUSE REALLY IT'S ALMOST A COP OUT TO SAY OH, WELL, OUR CRITIQUE IS THAT THE MARKET IS NOT RIGGED. WELL, YOU'VE AVOIDED ANSWERING THE REAL QUESTION HERE.

JAVERS: WELL YOU'RE STILL MAKING TOUGH CRITICISMS OF THE EXCHANGES THEMSELVES, RIGHT? I'M SORRY SCOTT, GO AHEAD.

WAPNER: NO. GO AHEAD BRAD. ANSWER THE QUESTION, PLEASE. AND THEN I WANT TO ASK YOU SOMETHING ELSE.

KATSUYAMA: YEAH I THINK, YOU KNOW, WHEN WE LOOK AND WE'VE LEARNED A LOT FROM BUILDING IEX AND LAUNCHING IT, I THINK, YOU KNOW, WHEN YOU LOOK AT THE ROLE OF THE EXCHANGE OR THE DARK POOL IN THE MARKET, THAT ROLE IS OF THE REFEREE. RIGHT? YOUR GOAL IS TO MATCH BUYERS AND SELLERS. BUYERS AND SELLERS ARE GOING TO COME TOWARDS THAT TRADE WITH DIFFERENT LEVELS OF INFORMATION, OF TECHNOLOGY. YOU ARE NEVER GOING TO EQUALIZE THE ACCESS THAT DIFFERENT PLAYERS HAVE. IT IS GOING TO BE ONE WHERE THAT IS JUST CAPITALISM, THAT IS JUST MARKET FORCES. BUT THE EXCHANGE OR THE DARK POOL, THE MARKET, THEIR ROLE IS REALLY JUST TO BE THE NEUTRAL REFEREE TO BE FAIR. AND I THINK WHAT HAS HAPPENED IS, AS TECHNOLOGY HAS EVOLVED AND DELIVERED THESE BENEFITS TO THE MARKETPLACE, YOU KNOW, THE MARKETS THEMSELVES DIDN'T SIT BACK AND SAY WELL TECHNOLOGY HAS EVOLVED, CERTAIN PEOPLE HAVE CERTAIN ADVANTAGES, HOW DO I USE TECHNOLOGY TO CREATE NEUTRALITY AND TO CREATE FAIRNESS. WHAT THEY DID IS THEY STARTED SELLING THE TECHNOLOGY. AND ALL OF A SUDDEN, WHEN YOU'RE SELLING TECHNOLOGY, REALLY WHETHER YOU ADMIT IT OR NOT OR WHETHER IT WAS INTENTIONAL OR NOT, INSTEAD OF BEING NEUTRAL, YOU BECOME ECONOMICALLY VESTED IN ONE PERSON WINNING OVER SOMEBODY ELSE. THE PERSON WHO IS BUYING THE TECHNOLOGY. SO I JUST THINK --

WAPNER: HEY BRAD, WE HEARD FROM TOM JOYCE, WHO USED TO RUN KNIGHT, FOR THE VERY FIRST TIME SINCE THE BOOK CAME OUT. HE WAS ON CNBC A COUPLE DAYS AGO. I'D LIKE TO GET YOUR REACTION TO WHAT HE SAID ABOUT MICHAEL LEWIS AND THE BOOK AND THEN GET YOUR REACTION ON THE OTHER SIDE. HERE IS TOM JOYCE FROM JUST A COUPLE OF DAYS AGO HERE ON CNBC.

TOM JOYCE SOUND: HE COULDN'T BE FURTHER FROM THE TRUTH. IN POINT OF FACT, HE IS DEAD WRONG. LET ME ASK YOU A QUESTION. WHO IS RIGGING THE MARKET? IS THE S.E.C. RIGGING IT? I DOUBT IT. IS DUNCAN NIEDERAUER RIGGING THE MARKET? I DOUBT IT. DUNCAN HAS MORE INTEGRITY THAN MOST PEOPLE HAVE IN THEIR ENTIRE FAMILY UNIT. BOB GREIFELD. WAS HE RIGGING THE MARKET?

WAPNER: SO DO YOU WANT TO ANSWER TO WHAT TOM JOYCE SAID? AND AGAIN, I MEAN, THE CONVERSATION WENT ON AND HE BROUGHT THE EXAMPLE OF EVERYBODY HAS AN ADVANTAGE OVER SOMEBODY ELSE AND WHATEVER LINE OF WORK OR WHATEVER YOU'RE DOING THROUGHOUT YOUR LIFE. YOU HAVE DOCUMENTED WITH EAMON A SPECIFIC ADVANTAGE THAT CERTAIN BROKERS HAVE OVER OTHERS IN THE WAY THEY TRADE ON IEX. SO ANSWER TOM JOYCE'S CHARGE, PLEASE.

KATSUYAMA: SURE. YEAH. NO I THINK THAT, AGAIN, IT'S WHETHER INTENTIONAL OR NOT, I THINK THAT WHAT HAS HAPPENED IS THAT YOU KNOW, THE MARKETS THEMSELVES HAVE IN A WAY PROVIDED CERTAIN ADVANTAGES. BACK TO THE POINT I WAS JUST MAKING IS THAT, YOU KNOW, THE EXCHANGE REALLY, THE DARK POOL, THE MARKETS, THEIR WHOLE GOAL SHOULD REALLY BE TO BE NEUTRAL, TO BE FAIR. AND TECHNOLOGY HAS EVOLVED. AND AGAIN, SELLING TECHNOLOGY, BEING IN THAT BUSINESS AUTOMATICALLY CHANGES YOUR PERSPECTIVE AND SHIFTS YOUR PRIORITIES. SO I DO THINK THAT AGAIN, YOU CAN'T CRITICIZE SOMEONE WHO SAYS HERE IS AN EVOLUTION OF TECHNOLOGY, I'M GOING TO USE THIS TO TRADE SMARTER AND FASTER AND CHEAPER. AGAIN, IT'S FREE MARKET FORCES. THERE IS NOTHING WRONG WITH DOING THAT. I THINK THAT REALLY WHERE THINGS GOT CARRIED AWAY IS, AGAIN, WHEN THE REFEREE BECAME VESTED IN CERTAIN OUTCOMES. I THINK THAT IS PROBABLY ONE OF THE LARGER PROBLEMS.

JAVERS: ANOTHER THING YOU HEAR WHEN YOU TALK TO YOUR CRITICS IS, WELL, IEX, YOU ARE NOT NECESSARILY AS A CUSTOMER GOING TO GET THE BEST PRICE IF YOU GO THERE AND ALSO, YOU MIGHT SEE SOME FEES THAT YOU WOULDN'T SEE ELSEWHERE. TALK TO US A LITTLE BIT ABOUT PRICE AND FEES AND WHETHER OR NOT YOU GUYS CAN BE COMPETITIVE FOR AVERAGE MOM AND POP TRADERS WHO ARE OUT THERE AND WHO ARE NOT REALLY INVESTED IN THIS WHOLE DEBATE OVER HFT, BUT JUST WANT TO MAKE SOME MONEY ON THEIR TRADE.

KATSUYAMA: SURE, YEAH. SO I MEAN WE DON'T PAY REBATES AT IEX. SO THERE IS A FEE ASSOCIATED WITH IT. SO, OF COURSE THE PEOPLE WHO ARE COLLECTING THOSE REBATES AREN'T HAPPY IN PAYING A FEE. BUT ALSO THERE ARE FEES THAT ARE MUCH HIGHER. THREE TIMES THE SIZE OF IEX'S FEES. SO IT IS KIND OF – WE'RE IN THE MIDDLE OF THE SPECTRUM THERE. YOU KNOW, AGAIN, DEPENDING ON THE KIND OF ORDER YOU SEND US, YOU KNOW, WE HAD A LOT OF RETAIL INTEREST AFTER 60 MINUTES AND AFTER THE BOOK. AND WHAT WE DID IS WE EDUCATED THESE PLAYERS AND SAID LISTEN, YOU HAVE TO SEND US ROUTABLE ORDERS. IF YOU HAVE 600 SHARES TO BUY IN MICROSOFT AT THE MARKET, SEND US THE ROUTABLE ORDER. THAT MEANS THAT IF IEX DOES NOT HAVE THE OTHER SIDE OF THE TRADE, WE'LL ROUTE IT OUT THE EXCHANGES ON YOUR BEHALF. SO I THINK IT'S ONE WHERE YOU KNOW, THE CRITICISMS ARE VERY HIGH LEVEL. BUT AT THE DETAIL, YOU KNOW, OUR ROUTER, WE'VE SPECIFICALLY BUILT A ROUTER TO ENSURE THAT IF WE DON'T HAVE THE BEST PRICE, WE'RE ADDING IT TO THE MARKET THAT DOES. RATHER THAN JUST KIND OF HOLDING THAT BACK AND TRADING IT OURSELVES. WE DON'T TRADE, WE NEVER GET ON THE OTHER SIDE. WE'RE NOT A PRINCIPLE TRADER. BUT IT IS REALLY FOR US ABOUT SAYING IF THERE IS A PRICE OUT THERE THAT IEX DOESN'T HAVE, WE'LL GO GET IT FOR YOU.

JAVERS: WELL THANKS, BRAD. IT'S A FASCINATING EXPERIMENT THAT YOU GUYS ARE DOING HERE. WE'RE GOING TO FOLLOW IT AS IT UNFOLDS. THANKS FOR BEING HERE. AND, SCOTT, BACK TO YOU GUYS.

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