IEX, the new US stock trading venue created by IEX Group, has appointed institutional trading veteran Jay Fraser as its head of business development. Fraser joined IEX Group on March 24 in IEX’s global headquarters in lower Manhattan. Fraser reports to Ronan Ryan, chief strategy officer. The five-month old venue landed in the media spotlight last week when Bloomberg News reported that Goldman Sachs in a memo voiced strong support for its investor-centric model. Wall Street & Technology Editor-at-Large Ivy Schmerken interviewed Fraser through an email exchange to learn about his new role at the trading venue and the IEX business model.
Fraser: I am head of business development, a newly created role within the firm due to the rapid growth of the client base both buy and sell side.
WST: What is your background and most recent positions in institutional trading?
Fraser: After a significant product investment, I spent the last three years building out DB’s sales and trading footprint in the Americas both in cash electronic globally and listed electronic derivatives in the US. Prior to Deutsche Bank I spent time at Citadel working to build out the institutional side of the execution services business. The bulk of my career and subsequently the most influential to my thought process were spent with ITG in trading, product and managerial roles both for the Americas and international markets.
WST: What attracted or brought you to IEX?
Fraser: In an era where there's been a proliferation of new venues all fighting for attention, you hear a lot of talk and claims of added value and differentiation. But after 20 years, I can spot the difference between talk and action. IEX is a fundamentally different proposition: broker neutrality (no broker ownership) and wholesale support from the buy-side (mutual funds and hedge funds...rare that such an alliance exists).
IEX is also the only platform that is willing to publicly stand up and say: “hey something seems a bit off with the market structure of today.” There are pundits on both sides of this one, but IEX is the only newly created market that was actually willing to put its effort where its mouth is. IEX is looking to help investors reduce their implicit costs and unnecessary impact of trading. It’s a solution that can be accessed by any broker used by the buyside. The end goal is to simply put more money back into the pockets of investors who choose investment themes and reward their brokers who help them with the process.
Most importantly, the premise of IEX is true…take pre trade transparency for example. Many platforms will tell you what happened after the trade. They will give you the opportunity to manage routing destinations by individual marketplace, type of venue, etc. There is an entire cottage industry established to provide metrics around performance slippage versus arrival, etc. etc. However, at the moment no one else is willing to publish their Form ATS and routing methodology in advance for you to see before you ever place a trade. So credit the team: they've thought through and built a model that works with -- not against -- both buy side and sell side.
[For more on IEX Utilizes Redline Trading's Ultra-Low Latency Ticker Plant for Market Data, see Ivy Schmerken's related story.]
WST: What are your goals in the coming weeks and months? What is the strategy – you mentioned to continue developing our relationships on buy and sell side. Why is this important to IEX’s current and next phases of development?
Fraser: We absolutely recognize the need to continue to broaden our relationships with both the buy and sell side. In that regard, I'm building on the work of Brad [Kaysuyama], Ronan and the rest of the team. We understand the unique and valuable relationship the buy side has with their brokers; many of us come from a full service background. I am looking forward to working with all salespeople at our partner firm, electronic, PT, cash, risk, listed derivatives. The executive team has done a great job of establishing relationships; our goal as a team is to now deepen those connections with more people at each firm.
Specifically with the broker community, it's about providing a meaningful option that benefits both them and their clients. Again, IEX has no broker affiliation or ownership so we don't compete with them in the league tables or for the share of wallet from their customers. Our neutrality lowers barriers for brokers seeking liquidity. The team has also taken protective measures so that brokers can come here to access liquidity that's safe for both their high tough desks and their clients: no co-location and no rebate keeps out gamers and attracts real institutional interest.
With the buy side, it's more about education as to the innovation and keeping them abreast of our progress. We find the experience is evolving, but we can’t keep information in a vacuum- we need to get around to our partners in a systematic fashion. For example, we are finding not only is there a benefit to accessing IEX via algo routes but it’s also beneficial to rest large orders here directly. We are finding the more blocks we trade the less slippage and price drift proving the sanctity of the system. With the benefit of 5 months of operation, we have evidence now...the trading experience is truly differentiated. We have case studies where IEX may only count for less than 10 percent of a liquid name's volume, but you still see over 50 percent of the largest prints here. Amazing, to me at least, for that to happen in a continuous market.
WST: Why has there been so much press around specific partners on IEX?
Fraser: We're running a marathon. To make it we'll need multiple participants, supporters and stakeholders from all corners of the industry. I'm talking buy-side, sell-side: cash desks, prop desks, systematic traders. Everyone.
We're happy and humbled when any partner speaks out on our behalf. Many do on a daily basis in less public forums and have been critical to the progress to date. With five months of operation behind us, we’re now hearing examples of buy-side firms comparing their broker execution data to determine which firms are providing IEX with a genuine opportunity and growing as IEX grows.
We're fair access and don't offer any preferential treatment. It's all spelled out in our Form ATS, which is publicly available on our website. The goal is broad participation and open communications with all stripes of firms both buy and sell side.
Bottom line: this is an open ecosystem where IEX doesn't disintermediate important broker relationships. We don't look to cut you out of your advisory and deep relationships with your brokers. Everyone is welcome, no matter what size broker you are.
WST: Is IEX going to announce new functionality in the near time that you will be marketing to the buy and sell sides?
Fraser: Our universal mandate [is] to improve the trading experience for all players. When we discuss changes we think about how that change benefits all our trading partners, not just large trader or special order type trader. The benefits of the growth at IEX will flow to all. Both the buy side and the employees, own the firm, and that is a very transparent and unique ownership structure.
As to products the new IEX smart router (not only in the QA environment but also in limited production) is capturing 99 percent of the available market liquidity even after touching the IEX pool. This enforces our premise that leakage/quote changes aren’t a risk to the end user. That’s market leading. I’m excited about getting this information around about the router to the buy and sell side both from a quality perspective and the sacrosanct/safe nature of the IEX pool.
WST: What else is on your agenda?
Fraser: Our model allows us to scale and potentially challenge the largest exchanges. But we also have flexibility to solve problems in other asset classes and regions: international markets, the opaque nature of the US options market, the budding need for aggregation tools in the SEF marketplace, possibly creating a CLOB for FX or corporate bonds...all of these things can be on the table with this model, firm structure and product offerings.
The future is exciting but the historical perspective is important too. IEX brings the trading process back to where it was maybe meant to be before the unintended consequences of regulatory change over the last 10 years. Early in my career at ITG our mandate was to bring together a group of investors who felt disadvantaged by the market structure of the time. The result was POSIT, a customer first market that essentially invented off exchange technology enabled trading that was revolutionary in its day.
But as market structure evolved the industry forgot who the beneficiaries were meant to be. IEX is full circle...a venue solely designed to benefit the investment firms and their end customers no matter how large or small. The timing is perfect.
Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio