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That shows there are differences in
business models and HFT can’t all
be painted with the same brush.
Universally, the concern has
shifted from HFT to questioning
the role of the stock exchange. The
exchanges fighting back as hard as
they did forces you to understand
where their priorities lie, because
they are increasingly dependent on
selling data and technology advan-
tages. That has a negative impact
on all players. I think the other
aspect of a shift in focus towards
the exchanges includes publically
traded companies as well. They
saw that application process and
we had a lot of calls asking why
their shareholders are supporting
us but their listed exchange is
“I think people will be surprised at the poor
execution quality on the exchanges that pay the
highest rebates.”
BRAD KATSUYAMA
attacking us. They questioned why
there wasn’t an alignment between
those two parties, and I think that
gave us a good window of opportu-
nity to explain the stock markets to
a lot of people who had been left in
the dark.
HM: IEX is aimed at helping the
buy-side but market share remains
relatively low. Do you think any
exchange specialising in servicing
the buy-side can achieve significant
market share vs. Bats, NYSE and
Nasdaq?
BK: In context, we hold 2% when
the largest exchange holds 14%,
and we are reasonably happy with
where we are and I think we have
a lot of room to grow. At the end of
the day, the originator of the orders
- the buy-side and the brokers - is
the most important player in the
ecosystem. I read a quote recently
from a high-speed trader who said,
“If you put all high-speed traders
on the same exchange, there would
be no trading.” This is true because
they are there to interact with real
liquidity and other investors. For
us it’s about educating the end
investor and rallying them together
in a fair and totally transparent way
that is aligned with their interests,
so that they want to trade on IEX.
The challenge that we face - and
I think we are up for this challenge
- is the rebate structure. Exchang-
es pay $2.5 billion a year to their
members to send them orders and
we don’t pay rebates. Instead we
are creating better outcomes for
clients, we run analysis of publicly
available data showing that the
execution quality on IEX is higher
than on any other exchange. If 50%
of the end users in the market de-
cided to send their orders to IEX,
Winter 2016
TheTrade
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