‘Flash Boys’ IEX Exchange Steps Up Efforts to Meet Reddit Retailer Needs, Forms Committee of Brokers to Improve Stock Market Structure

Newbie trading platform IEX Exchange aims to attract more business from retail investors and, in the process, is set to call regular meetings of some of the biggest brokerage houses with the aim of improving stock trading for retail investors which some critics have described as weakened.

IEX announced that it is forming the Retail Advisory Board, or RTAC, which includes platforms with a strong retail presence, including Fidelity Investments, Interactive Brokers Group Inc. IBKR,
Robinhood Markets Inc. HOOD,
and TD Securities, among others, to discuss ways to improve the trading experience for individual investors, especially as interest in this segment has exploded during the COVID crisis.

According to data from JMP Securities, more than 10 million new brokerage accounts were opened in the first half of 2021, almost equivalent to the total number of accounts opened last year.

IEX has a long history of trying to capitalize on its image as an advocate for market integrity and price fairness. The company is touted as a champion among average investors under Michael Lewis’s 2014 book, “Flash Boys: A Wall Street Revolt,” which highlighted its efforts to thwart sophisticated high-speed traders.

As part of its campaign for more retail, IEX plans, later this month or next year, to roll out improved ways for brokers to execute retail trades of at least 100 shares at the midpoint of bids and bids. In other words, halfway between the buy and sell price of a stock, which is considered a fair way to execute trades and one that is not usually offered to average investors. .

IEX kicked off the mid-term retail trade in 2019, but this time it has included features that it hopes will make it easier to identify retail trades, including electronic reporting of mid-term trade to using what he calls a Retail Liquidity Indicator, or RLI.

IEX has also implemented features to ensure that retail transactions are genuine and do not originate from computerized trading strategies.

The Wall Street regulator, the Securities and Exchange Commission, measures the best execution of stocks by studying the prices offered on so-called “informed” exchanges such as the Intercontinental Exchange ICE,
+ 0.78%
owned by the New York Stock Exchange or Nasdaq. But retail orders are increasingly being executed on dark stock exchanges and these orders are not used to estimate the official best price, called the National Best Bid Offer, or NBBO.

Ronan Ryan, president and one of the co-founders of IEX, told MarketWatch that “the stock exchange retail business is underexploited” and that the search for retail investors is “a natural progression for IEX” .

Amid the boom in retail, IEX has become a frequently mentioned name on social media sites like Reddit and Discord due to the perception that the company is fighting on behalf of average investors. Some sophisticated investors offer guides on how to “lead the way” to IEX if the trading platforms offer this functionality.

Ryan said IEX’s retail program is good for individual investors. “Retail is more fairly shaken up,” as execution at median prices tends to be offered only to banks and institutions. IEX was founded in 2012 by Ryan and Brad Katsuyama, its CEO, along with John Schwall and Rob Park.

It is not known whether IEX’s renewed attempt to attract retail businesses will be successful.

Ryan, however, was optimistic that increased communication with retail brokers through CRAT would prove fruitful for all parties involved.

“IEX always strives to align the interests of market participants, and RTAC is the latest example,” Ryan said.

“Any retail volume that we do on IEX is new business,” he said, adding that he recognized that the competition for market share was fierce on Wall Street. IEX knows that “other exchanges will be looking to do similar things”.

Uncertainty about the regulatory landscape may be a factor helping retail brokers to align themselves further.

SEC Chairman Gary Gensler is committed to being a champion of individual investors.

Gensler made the news last month when it said banning payment for order flow was an option “on the table.” In an interview with Barron’s, the SEC chief said that the practice of payment for order flow – whereby brokers sell the privilege of executing retail orders to market makers in exchange for a share of the profits – results in “an inherent conflict of interest,” and one where retail investors don’t see best execution, critics accuse.

Improving transaction execution for retail may prove to be a famous cause of Gensler.

“IEX has a retail program, like other exchanges, and despite their existence, we still see the vast majority of retail order flow executed over the counter,” Ryan said.

“The hope is that with our new upcoming retail program and the creation of the RTAC, we can advance the dialogue on market structure with retail brokers to work with them to find solutions to resolve their liquidity needs and do so on the stock market, ”he said. noted.

About Erick Miles


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