After more than six years building a stock exchange to curb predatory high-frequency trading, IEX Group Inc. has been rewarded with its first listing.
On Wednesday, IEX announced that its platform would soon host the shares of Interactive Brokers Group Inc., an automated brokerage firm, which is set to become the only major U.S. stock listed outside of the New York Stock Exchange or Nasdaq.
According to IEX founder Brad Katsuyama, the former Royal Bank of Canada trader depicted as a fair-market crusader against a rigged system in Michael Lewis’s bestseller Flash Boys, the first listing is the hardest.
“It sends a very strong signal to companies considering a switch,” Mr. Katsuyama said in an interview. “IEX comes in as a new competitor with a fresh perspective in a market that really needs competition.”
As an inaugural listing, Interactive Brokers is a good fit, Mr. Katsuyama said. With a market cap of US$24-billion, the financial services company – currently listed on the Nasdaq Stock Market – represents a vote of confidence in the new exchange.
Additionally, Interactive Brokers’ chairman Thomas Peterffy has criticized some high-speed trading practices as creating a market tilted against the average investor.
What is known as “front-running,” for example, allows algorithmic programs to anticipate large stock orders, execute the same buy in a flash, and sell to the original buyer at a higher price.
To thwart front-running, IEX intentionally slows everything down. Every order is subjected to a delay of 350 millionths of a second – what is known as a “speed bump.”
IEX’s mission is to “create a level playing field for all market participants,” Mr. Katsuyama said.
The native of Markham, Ont., founded IEX in 2012 after becoming disillusioned with “speed-driven loopholes” – practices the exchanges seemed to encourage, through selling preferred access and proprietary data.
The effort to challenge the U.S. stock-exchange duopoly was not received warmly by the incumbent players, Mr. Katsuyama said. “Nasdaq and [NYSE], every step of the way, have been pushing against us.”
And large companies have traditionally proved reluctant to switch venues.
As an incentive, IEX is offering five years to ten years of free listings to companies currently trading on either of the large exchanges – a promotion in effect for 120 days after Interactive Brokers makes its move on Oct. 5.
That offer applies to Canadian companies who are listed both here and in the United States.
“I would like to suggest to other listed companies that the savings they would derive by moving their listing to IEX and paying substantially lower listing fees, plus the savings their shareholders are likely to derive from transacting on IEX, would be well worth the expense of moving their listing,” Mr. Peterffy said in a release.