The filing would come in less than a year since IEX clients started trading on the platform in October 2013.
“It’s hard to estimate how long that process takes, but let us assume it will take 12 months,” said Ronan Ryan, chief strategy officer at the IEX.
Obtaining a protected quote as an exchange would solve two scaling issues currently facing the dark pool.
Since its launch, IEX has grown to become the ninth most liquid alternative trading system for the most liquid US stocks, according to the most recent volume and transaction data reported to the Financial Industry Regulatory Authority on 7 June.
“We routinely do 100,000-share prints,” he added.
However, dark liquidity pools have a natural scaling issue due to Regulation ATS. If an alternative trading system (ATS) has traded 5% or more of a stock’s daily average volume during at least four of the preceding six months, it must either stop trading the stock or provide access to the whole market.
Secondly, many brokers say they have a significant amount of liquidity that they will not route to dark liquidity pools, explained Ryan. “They need a displayed quote in order to heat map their smart order routers to that liquidity.”
The ATS operator might obtain exchange status quicker by purchasing the exchange medallion of a shuttered exchange like the National Stock Exchange, which its Chicago Board Options Exchange owner closed in May, but any time savings IEX would gain would be eaten up by filing the necessary rule changes and waiting for the comment period to end, the exchange said.
Some in the industry speculate that IEX’s broker-preferencing capability might require a more in-depth analysis by US regulators.
“The broker preferencing has not been something proposed to the SEC to our knowledge but there is precedent in the US and other countries where strict price-time priority is changed to cater to a different client base,” said Ryan.
The feature allows a broker to jump ahead of other brokers who have time priority and are quoting the same price if the original broker has the best quote on the other side of the trade. If the trade is not completed then remnant shares are filled using the standard price-time priority.
“The Toronto Stock Exchange has offered this for years and has called it ‘internalisation on the board,’” he added.
Such transactions do not occur regularly on the platform, appearing approximately 3% of the time estimates Ryan, and when they do IEX waves its standard US$0.009 fee for adding and removing liquidity.
IEX has risen to prominence in the US market following the publication of Michael Lewis’ high-frequency trading exposé ‘Flash Boys’, which featured both Ryan and IEX CEO Brad Katsuyama. The venue aims to offer a place where investors can trade stocks without being gamed by latency arbitrage strategies by adding in a mandatory delay before orders can be matche