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IEX fires back at the NYSE

IEX Group Inc. just put the New York Stock Exchange in the hot seat.

The two year-old trading firm featured in Flash Boys has been under intense scrutiny since the Securities and Exchange Commission began reviewing its application to become a public exchange.

At the heart of the debate is whether IEX’s “speed bump” of 350 microseconds, which allows it to protect orders from scalping by higher-speed traders, is acceptable on a public exchange. The SEC has received well over 300 comments on the topic, with the major exchanges, including NYSE, claiming that the “speed bump” will result in investors receiving stale and misleading quote information.

In an op-ed piece published Sunday, IEX co-founder Don Bollerman, responded to NYSE, accusing the exchange of featuring its own misleading quotes, as part of a multi-tiered trading system.

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Last year, Bollerman recounts, IEX noticed that an unusually low percentage of orders sent to NYSE were filled at the expected quote. When IEX brought the issue to NYSE’s attention, representatives were told to upgrade from the NYSE FIX gateway to the NYSE Binary gateway, a “new, faster protocol.” The switch resulted in order fill rates moving from 87% on NYSE to 97%.

IEX noticed an unusually low fill rate on NYSE
IEX noticed an unusually low fill rate on NYSE

“NYSE effectively imposed a “Speed Bump” on all of its participants who did not upgrade,” wrote Bollerman. “They effectively slow down everyone else by offering a faster means of access that only a few have bothered to adopt given the amount of development work necessary to do so. We found very little documentation about this offering, and no public filings with the SEC,” said Bollerman.

In a November 2015 comment letter regarding IEX's application, NYSE alleged that the IEX “speed bump” does not comply with legislation requiring immediate execution of orders. NYSE compared IEX to the Seinfeld frozen yogurt shop that claims to serve non-fat yogurt, but "actually serves tastier, full-fat yogurt to increase its sales."

While the SEC originally listed December 21st as its decision deadline on IEX's application, it requested a 90 day extension last month. A ruling is currently expected by late March.

NYSE has yet to respond to a request for comment.