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[NEW YORK] IEX Group , which has struggled to gain market share with its US stock market, is facing another challenge as the New York Stock Exchange opens a copycat market.
NYSE American starts July 24 with a 350-microsecond speed bump, mimicking the delay IEX uses on its Investors Exchange, which it says protects investors from predatory kinds of speed-based trading. On Monday, NYSE announced it'll be 78 per cent cheaper to place some kinds of trades on its market versus IEX's.
Though it opened with great fanfare last year, IEX has only captured about two per cent of US trading. It must now persuade traders that its mission - built around the premise that exchanges are often unfair to investors - is worth backing even though there will be a less expensive place to do business.
The move by NYSE creates "competition to IEX's offering, which has gotten limited traction to date," said Rich Repetto, an exchange analyst at Sandler O'Neill & Partners LP.
IEX got its start as a dark pool - or private market where orders are secret until they're executed - and that heritage shows up at the Investors Exchange: more than two-thirds of its volume comes from dark orders.
Adding, Taking IEX charges 9 US cents per 100 shares to "add" or "take" dark liquidity; put another way, that's how much it costs to place standing orders for others to execute against, or to do the executing against those orders.
NYSE American will charge two cents per 100 shares for both types of trades. For both companies, those prices only apply to shares priced above US$1, though that's the vast majority of stocks.
The Investors Exchange handled 2.2 per cent of US stock trading in June, according to data compiled by Bloomberg. NYSE's three exchanges processed more than 20 per cent. NYSE is a unit of Intercontinental Exchange Inc.
"Exchanges are distinguished most importantly by the execution quality they obtain for investors, not the fee or rebate an exchange pays or charges," said Michael Russell, a spokesman for New York-based IEX.
"We look forward to competing with NYSE America on that front."
Kristen Kaus, a spokeswoman for NYSE, declined to comment.
NYSE American will be the re-vamped version of NYSE MKT, the company's smallest market, which handles less than one per cent of US stock trading volume and serves as a listing venue for small companies. IEX is working to build its own listing business, which may open as soon as October.
"This seems like a relatively low-risk way for NYSE to protect its listings franchise against the coming attack from IEX," said Justin Schack, managing director at Rosenblatt Securities Inc.
"It's really hard for an upstart to succeed there, but the business is important enough to the incumbents that it makes sense to try to frustrate any challenger."
IEX has long said its ethos goes well beyond its speed bump. Chief executive officer Brad Katsuyama crusades against rebates that exchanges offer to woo trading volume, claiming these "kickbacks" distort where brokers send trades.
Last month, he made that case to members of Congress in a hearing on US stock market structure.
John Ramsay, IEX's chief market policy officer, has also argued the company's scope is broader.
"The speed bump is one piece of our design," he said in March at a conference in New York.
"I think there are other ways that you can, and other ways that we will, propose to provide additional protection to investors."