Recently, NYSE announced it was going to introduce a “speed bump” exchange called NYSE American. Critics jeered that NYSE just blatantly copied IEX’s market structure. And it is true that the bump is going to be 350 microseconds, just like IEX. It will have a complex discretionary pegged order type, just like IEX. And it will have a pricing model that charges both sides of the trade, just like IEX.
But unlike IEX, NYSE American will also have HFT DMMs providing continuous liquidity and stable prices. The same HFT DMMs we blogged about a few days ago that NYSE credits with providing “superior market quality” to its listed companies. Hmm, do you get the feeling this is about issuers more than trading? Suddenly the copycat looks more like the Cheshire Cat.
Unfortunately, a lot of the coverage and discussion was distracted by a rehash of the misconception that NYSE/ICE Chairman Jeff Sprecher had once called IEX’s business model “Un-American.” Sprecher actually said that for the SEC to give IEX (or presumably anyone) an exclusive regulatory exemption would be Un-American, a fair point.
The real focus should be that NYSE is using the new model as an important way to leverage HFT DMMs and attract listings to a new exchange. IEX believes there is a large, untapped pool of company listings just itching for the ‘protection’ afforded behind the new speed bump model now blessed by Regulators.
So, NYSE American now sees your speed bump and raises you electronic DMMs using high frequency trading tools that will keep continuous watch over the smooth trading of listed companies’ stock. Not to mention, a marble podium, iconic bell and historic trading floor. That goes double if Nasdaq throws its hat in the speed bump ring, offering companies a long history of electronic trading by technology-driven intermediaries. Not to mention the offer of a company’s name in lights in Times Square and the cool factor of sharing an exchange with Apple, Facebook, Amazon, Tesla, and Alphabet. Then there’s the world-class investor relations and marketing services these two exchanges bring to the table.
As for NYSE American, its move to mimic IEX’s fee structure could also be a shrewd set up for a plan to undercut it. IEX currently charges nine mils per share to the buyer and the seller. Could NYSE American charge 8, or 5, or even 1? And how will that slice up the tiny two percent pie of speed bump trading IEX has been able to muster, uncontested, so far? The Cheshire grin grows wide.
The irony here is that the allure of HFT DMMs — the very HFT DMMs who also trade on IEX — could figure prominently in drawing listings to NYSE American. That’s right, the famous “anti-HFT” market already depends on HFT firms to provide much of its liquidity. Perhaps, if IEX had only publicly embraced HFT rather than vilified it, they’d be in a stronger competitive position today.
As the Cheshire Cat said “Only a few find the way, some don’t recognize it when they do – some… don’t ever want to.”
TIMOTHY MASSAD, CFTC Chairman
June 3, 2015 Speech