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