Disruptive technologies have always alarmed segments of the population, whether it was the English Luddites who destroyed labor-saving machinery during the Industrial Revolution or modern-day fearmongers who warn of the potential malevolence of artificially intelligent robots. But rare is the modern commercial endeavor founded from the start on the principle of intentionally slowing down technology advances.
But that’s what we have now with IEX, a private financial trading platform that, after finally gaining US Securities and Exchange Commission approval in June, relaunched on August 19 as a full-fledged stock exchange, putting it into direct competition with the New York Stock Exchange, Nasdaq, and 10 other US exchanges. The most noteworthy and controversial feature of IEX is its “speed bump,” a technology construct that slows down stock trades ever so slightly (by 350 microseconds) so that all trades arrive in roughly the same amount of time, ostensibly to give ordinary investors a level playing field to compete with tech-advantaged high-frequency traders.
The SEC’s approval of IEX, founded by the folks popularized in the Michael Lewis book Flash Boys: A Wall Street Revolt, has incited a hue and cry among existing exchanges. The critics continue to argue that IEX itself is inherently unfair because it violates a US regulation that requires all stock exchanges to make their prices “immediately” available, “without any programmed delay.”
Like all “fintech” startups, IEX is looking to fill what it perceives to be a gap in the market, notes Sonny Singh, general manager of the Oracle unit that sells to financial services companies. In this case, IEX is appealing to small investors who shy away from conventional stock exchanges because they think the returns are tilted in favor of big institutions and other players with access to the most sophisticated high-speed trading infrastructures.
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While emphasizing that Oracle doesn’t have a dog in this fight, Singh says he doesn’t see anything counterintuitive about IEX’s business model. “If it takes, it takes,” he says. But stock exchanges must ultimately attract a critical mass of traders, he notes, or they’ll suffer from liquidity problems and grow only so large.
A skeptic might point out that just about every process designed in the name of "fairness”—whether it’s FDA approvals of new drugs or licensing requirements that favor startups over incumbents—ultimately gets gamed by a savvy (sometimes unscrupulous) element. It may be only so long before high-frequency traders figure out a way to use the IEX speed bump to their advantage, noted one Wall Street wag in a New York Times article on the exchange. Then what?
- Related: Oracle Financial Services
