CEO of BrokerDealer Electronic Exchange Platform IEX Speaks Out (Again)

In a July 9 blog post, we profiled the coverage of start-up company IEX, the innovative and self-acknowledged “disruptive” institutional equities order execution platform for brokerdealers that has received unheralded PR courtesy of the book “Flash Boys”, written by former securities industry member Michael Lewis.

Subsequent to being contacted by IEX communications executive Gerald Lam in his effort to set the record straight re: erroneous news media coverage, this blog has kept an eye on IEX; below are extracts from an op-ed article written by IEX CEO Brad Katsuyama to Bloomberg LP and published on Aug 3

‘Flash Boys’ and the Speed of Lies

65 Aug 3, 2014 6:03 PM EDT

By Brad Katsuyama

IEX CEO Brad Katsuyama, Image Courtesy of Wall St. Journal

IEX CEO Brad Katsuyama, Image Courtesy of Wall St. Journal

In the last few months, I have had a strange and interesting experience. In early April, I found myself the main character in Michael Lewis’s book “Flash Boys.” It told the story of a quest I’ve been on, with my colleagues, to expose and to prevent a lot of outrageous behavior in the U.S. stock market.

Many of us had worked at big Wall Street brokerdealer firms or inside stock exchanges, and many of us believed something was amiss in the market. But it took the better part of five years to discover exactly how the market had been organized to benefit financial intermediaries, rather than the investors, the companies or the economy it was meant to serve. Only after looking at a flurry of market innovations — 40-gigabit cross-connects, esoteric order types, microwave towers — did we understand that the market’s focus was less about capital formation and more about giving certain market participants an advantage over others. In the end, we felt that the best way to solve these problems was to build a stock market of our own, which we did.

After the book, our stock market, IEX Group Inc., became a topic of discussion — some positive, some negative, some true and some false. Fair enough. If you’re in the spotlight and doing something different, you should take the heat along with the light.

It’s for this reason that we have done our best to resist responding publicly to misinformation about our company — even when we read memos circulated inside banks that “Michael Lewis has an undisclosed stake in IEX” (he does not); that “brokers own stakes in IEX” (they don’t); or articles in the Wall Street Journal that said we let “broker-dealers jump to the front of the trading queue,” putting retail investors and mutual funds at a disadvantage (in reality, all orders arrive at IEX via brokers, including those from traditional investors). Our hope in staying quiet was that the truth would win out in the end. But in recent weeks, the misinformation campaign has hit a new high (or low), and on one particularly critical matter, we feel compelled to set the record straight.

For the entirety of IEX CEO Brad Katsuyama’s Aug 3 op-ed piece to Bloomberg News, in which he seeks to dispel the erroneous information published by industry news media and select broker-dealer industry analysts, please visit the Bloomberg site at

For those who are challenged with reading, Katsuyama was interviewed on Bloomberg TV Aug 5…The link to that video is

Electronic Exchange Venue IEX’s Corporate Communication Exec Speaks Out re: Blog Post

As a professional courtesy, blog is happy to post the following comment sent to us by IEX media representative Gerald Lam in response to our July 7 post, which merely extracted snippets from a July 7 WSJ article profiling the latest announcement from IEX, the electronic trading venue for block equities trading whose “anti-HFT” notoriety has spread far and wide thanks to the book “Flash Boys”

From: Gerald Lam <>
Date: July 9, 2014 at 6:26:32 AM PDT
Subject: Contact email from Gerald Lam

I work at IEX, managing media & communications. I read your blog post on us from Monday, July 7 with concern.

Unfortunately, Bradley Hope’s article was misleading. And some of his inaccuracies have bled onto your piece.

For one thing, the “scheme” as you put it, is nothing new. We’ve offered it since the day we launched: October 25th, 2013.

Secondly, your second paragraph is wrong. Broker-dealer orders would not jump to the top of the order book over orders submitted by buy-side investors. Every buy-side investor (retail included) must be represented by a broker-dealer at IEX. There are no broker-dealer orders competing with non-broker-dealer orders here because every order at IEX is submitted by a broker-dealer.

Who does get “jumped”? Orders from other broker-dealers who are not providing both buyer and seller for a particular order at a particular price.

At the same time, investors (i.e. retail, mutual funds) who are represented by the internalizing broker-deal stand to benefit when they’re represented by the internalizing broker-dealer…their orders receive priority on the order book!

The bigger picture here is liquidity fragmentation — namely it’s detrimental impact to the investor experience. Our feature Broker Priority was designed to encourage brokers to internalize in once central, neutral (i.e. not owned by broker-dealers) venue.

I hope this sheds light on where the WSJ article got it wrong. I’m happy to talk through any of these issues.

I’d be grateful if you could address these clarifications in your blog.

Thank you,

BrokerDealers To Trade For Free in IEX Stock Exchange Proposal: The Death of Dark Pools?

As reported by Bradley Hope in today’s WSJ, upstart equities trading venue IEX, the “dark-pool buster” profiled in the Michael Lewis book “Flash Boys,” announced today a new market structure scheme that would provide commission-free execution for orders submitted by brokerdealers.

According to the proposal, which is “expected to be submitted imminently” to the U.S. Securities and Exchange Commission in connection with IEX’s plan to move from its current status as an ECN (electronic communications network) and towards becoming a full-blown stock exchange, broker-dealer orders would receive priority in the IEX order book, meaning those orders would jump to the top of the order book if the price to buy or sell a stock was at least equal to the prevailing orders entered by non broker-dealers aka buy-side investors that include high-frequency trading firms, mutual fund firms and retail investors. In addition to brokerdealer orders being provided priority over other same-priced orders sent to the platform by non BD’s, broker-dealers would be able to execute commission-free.

In a move that is purposefully intended to disrupt the current market structure status quo and challenge the viability of loosely-regulated and so-called “dark pools,” in which pricing transparency is purposefully hidden so as to mitigate gaming of orders submitted by large institutions, IEX is embracing an approach that has become widely-embraced in Canada’s equity marketplace, whose primary equities trading is administered by TMX Group, that country’s largest stock-exchange provider. Noted TMX Group CEO Thomas Kloet, “The virtue of having more bids and asks consolidated in a few order books, rather than scattered across dozens of venues [such as what takes place in US markets) makes markets more transparent and provides for greater price efficiency.”

The IEX proposal comes close on the heels of recent events in which dark-pool operators have been accused by regulators and law enforcement agencies of various charges, including accusations filed against Barclays PLC by New York State Attorney General which alleges Barclay’s misleads its clients about the way its dark pool favors high-tech “high frequency traders.” Barclay’s system “Barclays LX” was the industry’s largest dark pool used by a broad universe of investors and competing banks, until those charges were filed last month. Since that time, Barclay’s has supposedly experienced a large exodus of clients using their platform, presumably because of concerns they too will be on the receiving end of New York AG subpoenas.