After all the hoopla around the "Flash Boys" book, all the regulatory hand-wringing, the traded barbs, and the TV fights, IEX will finally launch as a stock exchange beginning on Friday.
It will be a "soft" rollout, with only two stocks — Vonage and Windstream — trading at first. Eight more will be added Wednesday, followed by more on the following Monday, with all symbols trading by September 2.
"This is just another step to change the way stock exchanges operate and service the industry," CEO Brad Katsuyama told me. "We're ready to start the next chapter in our evolution."
IEX has been operating as one of the 40 or so "dark pools," which are private trading venues. They're called "dark" because they generally do not display liquidity — that is, they don't display bids or offers — although a small portion of IEX's pools does. The stock exchanges — Bats Global, the NYSE, and — are, for the most part, "lit" exchanges that do display bids and offers.
The new IEX exchange is different from the other exchanges in several respects:
One final point: Unlike Bats, IEX has indicated it will seek to get into the lucrative listings business to compete with the NYSE and NASDAQ. Listings are a serious business: They're about 12 percent of ICE's revenues, and 13 percent of NASDAQ's.
Will the new exchange succeed? Right now, it has less than 2 percent of the market share, but that will likely change. Becoming a "lit" exchange will certainly attract more volume, though how much of the new exchange will be "lit" is not clear.
Some traders that rely on rebates for trading profits may be reluctant to use the exchange, but Katsuyama says he's not worried. "IEX has to earn each order rather than paying a rebate to get it. And we do that by focusing on protecting the order and delivering high-quality executions. The rebate is very rarely passed onto the end client, so they don't care about the rebate. Their goal is high-quality execution, which is the same as ours."
If the buy side really gets behind IEX and insist that their brokers post on IEX (this has already happened to some extent), their volume will certainly go up.
How much volume they attract may determine the reaction of the other exchanges. The competing exchanges vehemently objected when the SEC ruled that a 350-microsecond speed bump was so small it didn't matter. NASDAQ considered suing but has now decided to offer a variant: They are planning to introduce a new order type that would reward those willing to commit liquidity to order books for a minimal amount of time — likely a second. This is not a speed bump: It would simply give priority to those willing to let the orders rest on the books longer.
Expect more variants to surface from other exchanges.
What does it all mean? It's a good idea to have a discussion about the obsession with speed. Whether it will ultimately make a difference is not clear. But it's good to have that option.