The Securities and Exchange Commission in the US has officially approved Investors’ Exchange’s (IEX) application to become a registered trading venue.
The regulator said the approval is about promoting competition and innovation, “to deliver a robust and efficient service to both retail and institutional investors.”
IEX is subject to certain conditions before operating as an exchange, including joining the Intermarket Surveillance Group and participating in national market system plans.
Brad Katsuyama, chief executive officer at IEX, wrote a letter following the SEC’s decision said: “It’s been quite a journey…”
He added: “We have faced several obstacles along the way and we learned along the way, but we hope our partners realise that our team's hearts and minds are in the right place”
The decision is set to be controversial.
In May this year, Nasdaq wrote to the 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.
Nasdaq said in the letter 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.”
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.
In a statement about the approval, the SEC updated its interpretation of automated securities prices.
It said: “an automated quotation is one that, among other things, can be executed immediately and automatically against an incoming immediate-or-cancel order.
“The Commission’s updated interpretation determined that a small delay will not prevent investors from accessing stock prices in a fair and efficient manner consistent with the goals of the Order Protection Rule.”
IEX’s CEO, Brad Katsuyama, concluded: “[IEX’s] goal is to bring real competition to the exchanges by challenging the rising cost model for data and technology while also protecting investors and delivering superior execution quality.”