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Komfie Manalo, Opalesque Asia:

This article has been contributed by Andrew Upward, Weeden (email: aupward@weedenco.com)

EXECUTIVE SUMMARY

IEX’s speed bump is a clever innovation that protects hidden liquidity providers from trading at stale prices. The benefits to the liquidity provider spill over to the liquidity-taking side of the trade, which is where we think institutional investors will find the most value. We applaud this effort to enhance market structure for the benefit of institutional investors. Displayed liquidity on IEX is a different story. It’s tougher to figure out what types of traders will make use of it, and in what scenarios. Granting trade-through protection to these orders presents costs that must be weighed against the benefits of allowing IEX to compete as a full-fledged exchange. Valid counter-arguments notwithstanding, we feel that the costs outweigh the benefits, and that the rules suggesting that IEX’s quotes should be denied trade-through protection should be upheld.

INTRODUCTION

No topic stirs up as much passion and curiosity among our clients as IEX, the Alternative Trading System applying to become the 13th US stock exchange. Amid all the talk about the need for a holistic review of the market’s rules and structure, the folks at IEX went out and built a business that strikes at the heart of many of the practices that frustrate large swaths of the buy- and sell-sides o......................

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