Nasdaq threatens IEX speed bumps with legal action

Nasdaq urges the SEC to deny IEX’s application to become exchange, and threatens legal action over its use of speed bumps.

An acting attorney for Nasdaq has written to the US Securities and Exchange Commission (SEC) threatening legal action against IEX, an alternative trading system (ATS) firm, over its use of ‘speed bumps’.

The speed bumps slow incoming orders by 350 microseconds to prevent high-frequency traders on its market from having any advantage over other participants.

Amir Tayrani, the attorney for Nasdaq, said in the letter to the SEC that rules surrounding intentional time delays are prohibited, so the “Commission lacks the authority to approve IEX’s pending application and to treat IEX’s intentionally delayed quotations as protected.”

It continued with a warning that “the proposed interpretation would be unlikely to survive judicial scrutiny.”

Nasdaq has urged the SEC to uphold its interpretation of delayed time responses, and therefore deny IEX’s application to become an exchange.

Market maker Citadel and the New York Stock Exchange have also voiced their concerns about IEX’s recent application.

IEX “encroaches on the traditional role of broker-dealers and would use inherent competitive advantages that exchanges have over broker-dealers,” Citadel said. 

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