Flash Boys Hero Wins, Wealth Funds Rejoice

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On Friday June 17th, IEX Group Inc., the company founded by Brad Katsuyama, won SEC approval to run a U.S. stock exchange. IEX will be the 13th U.S. national stock exchange certified by the SEC. Before the approval, IEX ran as an alternative trading system. IEX garnered additional fame when it was included in Michael Lewis’ book “Flash Boys: A Wall Street Revolt.”

IEX is unique in terms of exchanges in that it proposed a “speed bump” to reduce trading speed to their exchange by 350 microseconds – effectively limiting the power of high frequency traders to beat out the competition. The mechanics by which the exchange works is actually very basic: a coil of fiber-optic cable which increases the distance the information needs to travel to the exchange.

“We thank sovereign and domestic funds for the broad support they have provided throughout this process, which demonstrates that we are providing real value for the long-term investors that the markets are meant to serve. Getting approval as an exchange gives these investors and the millions of beneficiaries they represent an important new choice that puts their interests front and center,” John Ramsay, Chief Market Policy Officer at IEX commented to the Sovereign Wealth Fund Institute (SWFI).

Sovereign wealth funds, which own large portfolios of listed equities, are eager to work with platforms like IEX given their concerns with high-frequency trading (HFI). For example, in a comment letter to the SEC, Norges Bank Investment Management (NBIM), the manager of Norway’s sovereign wealth fund stated, “We would expect that the ‘speed bump’ as well as other proposed features of IEX, such as the relative simplicity of available order types, would mitigate the potential for such rent extraction.”

Other SEC comment letters weren’t as glowing for IEX. For example, exchange rival New York Stock Exchange stated, “IEX advertises that it is ‘A Fair, Simple, Transparent Market,’ whereas it proposes rules that would make IEX an unfair, complex and opaque exchange.” For now, it appears that the investors’ words were more compelling to SEC officials.

Background on Brad

Brad Katsuyama interned at RBC Capital Markets in the late 1990s, eventually becoming full-time in 2001. Katsuyama eventually become global head of electronic sales and trading at RBC. He left in 2012 to form IEX Group.


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