IEX sets volume record as HFT attention smolders

US alternative trading system IEX last week set new daily and weekly volume records, but a senior executive has downplayed the impact of publicity for Michael Lewis’ new book on high-frequency trading.

US alternative trading system (ATS) IEX last week set new daily and weekly volume records, but a senior executive has downplayed the impact of publicity for Michael Lewis’ new book on high-frequency trading (HFT).

IEX, which launched in October, executed 58 million shares on Tuesday to contribute to a new weekly average day high for the venue of 48 million shares, double counted.

The venue has gained widespread attention following its favourable portrayal in ‘Flash Boys’, which was released last week and depicted HFT as unfair and potentially illegal, sparking renewed debate on the impact of the practice on end-investors.

Brad Katsuyama, president, CEO and founder of IEX, features prominently in the book, and appeared widely on US TV last week, including on the popular ‘60 Minutes’ programme.

Jay Fraser, head of business development for IEX, told last week’s record volumes were not linked to the book’s publicity, but had led to greater engagement with interested buy-side parties.

“Last week's activity may have been helped by the book, but in reality it is the result of a gradual, coordinated campaign with our sell-side participants since our launch last year,” he said.

The platform’s figures show growth from its first full month of trading in November, where it executed 5.6 million shares, to March’s high of 37.8 million shares, representing a total of 0.28% market share in US equities. This included a nearly 30% monthly rise from February to March, showing buy-side interest in the platform has continued to grow.

“This increased attention has had more of an impact on the conversations we're having with the buy-side to optimise the platform to meet their needs,” Fraser said.

He added that interest had included a large catchment of asset managers, hedge funds and retail investors and even a US start-up keen to list on the platform. He said all enquiries would be responded to in due course.

Fraser confirmed that IEX still planned on transitioning to a lit venue by displaying orders when the ATS and its members were satisfied with its market share and the number of symbols in which it is active. Matt Trudeau, the firm’s head of product, told last month this would likely occur in Q2 2014, but no date has yet been set.

IEX seeks to reduce institutional investor exposure to predatory activity, but does not exclude HFT activity. Instead, it has created a platform where no one firm can derive a speed advantage over another, achieved in part by physically spooling excess fibre optic cable within the venue’s data exchange.

Routing interest

One senior member of a sell-side firm that routes to IEX said buy-side clients previously unfamiliar with IEX had expressed a desire to route orders to the platform, resulting in a higher demand to execute in the venue.

“There’s definitely been a heighted level of interest in IEX from the buy-side since the book came out,” the source told, adding that this included a number of asset managers requesting to route orders to IEX for the first time.

“A lot of attention has come from senior buy-side figures who are removed from the plumbing of trading, but who have learnt of IEX through the book’s publicity. Most traders have known about IEX for some time now,” the source said.

A controversial topic among trading professionals and regulators for over half a decade, the topic of HFT has attracted increased interest among politicians year.

On Friday, Eric Holder, US Attorney General, confirmed that the US Department of Justice had begun an investigation to determine whether HFT breached insider trading laws, speaking to a House of Representatives panel at a hearing on the department’s budget.

Eric Schneiderman, Attorney General for New York, has also said publicly in recent weeks that he will investigate HFT activity to discern whether faster access to markets and data have put some market participants at an unfair, and potentially illegal, advantage.