What role does a stock exchange currently play and how has this changed?

Exchanges are different from other markets in that they are required to provide “fair access” to all participants who want to trade on the market. Through their displayed quotes, they are responsible for the price transparency and price discovery that other markets rely on, and they are subject to comprehensive oversight to make sure they serve the public interest. Our concern is that, over time, exchanges have mainly moved to a system of competing for orders by using an incredibly complicated pricing system with “rebate tiers” that, in practice, mostly benefit a handful of professional trading firms.

How can venues generate more interest in the lit primary markets?

 Venues can generate more interest by making it less expensive to access exchange quotes and relying less on rebates to attract displayed orders, and instead focusing on ways to give investors better executions when they trade on exchanges. IEX has focused a lot of attention on creating order types that protect investors from poor executions when they use displayed orders and making it less expensive to trade with orders that are displayed.

What regulatory changes on the horizon are likely to have the greatest impact on trading venues?

Three things would be helpful in a positive way. First, a targeted change to the tick size to a half-cent for stocks that could benefit from narrower quotes that reflect the prices where participants want to trade. Second, reducing the access fee cap so institutional investors, in particular, have lower costs when they need to trade with exchange quotes. Finally, it would be helpful to have a common minimum trading increment and give exchanges the ability to display the orders willing to trade with retail investors in that increment. Doing those three things in tandem would have a huge and beneficial impact for trading venues, but especially for investors.

How can the divisive issue of data access and cost best be addressed by regulators?

One big step would be to force the exchanges to move forward with implementing the SEC’s market data infrastructure rule, which will allow more entities to compete in providing market data. That rule has been adopted and has been upheld in court, but the large exchanges continue to drag their feet in taking the steps the SEC has required to make it a reality.

With the comment period ended, what feedback have you heard from other market participants on the proposed reforms?

We’ve heard a surprising amount of agreement on some key aspects of the reform, which is very different from the general narrative that the industry is against all these reforms. A careful review of the comment letters and what we hear from others paint a different picture. There seems to be a lot of sentiment in favour of cutting the tick size to a half-cent for many stocks, reducing access fees, setting a common trading increment for retail orders, and moving ahead with new round lot sizes and disclosure of odd-lot quotes, as the SEC proposed. There also seems to be pretty universal approval of the changes to Rule 605. Other proposals are more controversial, but it is simply a distortion to suggest there isn’t significant support for reform in many of the areas outlined in the proposals.

Of the four proposed reforms, which do you think most advances Chairman Gensler’s goal of promoting competition and fairness in the market?

Three very impactful changes would include a targeted reduction in the tick size, a common trading increment for retail orders, and a reduction in the access fee cap to $0.001 for all stocks. Together, those would spur healthy and fair competition among exchanges and other markets and lead to better prices for investors.

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According to the exchange, The Signal is designed to predict imminent changes to the National Best Bid/Offer (NBBO) and allow order types including D-Peg and P-Peg to react positively to unstable market conditions.

IEX and co-founder Brad Katsuyama have claimed to champion better protection for investors from adverse price selection since the inception of the exchange in 2013. This included the introduction of a discretionary limit order (D-Limit order), acting as a speed bump mechanism, allowing investors to buy or sell a security at a specified price or better.

The latest version of The Signal brings a new level of performance for pegged orders on IEX Exchange.

Enhancements to the model include looking at both size and number of venues, as opposed to just venues; the addition of three new venues (MEMX, MIAX, Nasdaq PSX); and the shift from a logistic regression to a rules-based model.

In previous updates, the latest version of The Signal was pushed by IEX to all members at once. However, with this latest version, members are invited to opt in and make the change at their preferred pace. The existing version will remain the default.

From 18 April, clients will be able to elect through a port request form to use the new Signal formula for all of their D-Peg, P-Peg, and C-Peg orders or can designate via a FIX tag to opt-in on a per-order basis.

The roll out of the new Signal version in this manner will enable members to transition from the current model to the new model for their pegged order types at their own pace, or stick to their current experience if preferred.

This will allow for live A/B testing of comparable models to occur in a way that was not possible in previous Signal updates.

“With market conditions changing rapidly, protection against adverse selection is more important than ever,” said IEX.  

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What precipitated the SEC reforms, and are they needed?

It has been 17 years since the existing equity rules were adopted, and since that time, the stock market has seen significant change – including the growth of high-frequency trading, a dramatic decline in displayed liquidity on exchange, and a substantial rise in off-exchange trading.

We think that modernising regulation like this ensures that market competition among brokers, market makers, and exchanges will continue to benefit investors. 

What are the most crucial elements and why? 

While there are many key elements to these proposed reforms that will be discussed during the upcoming comment period, there seems broad support for narrowing tick sizes for highly liquid stocks, though the SEC has proposed more categories and narrower tick increments for some of these categories than most participants have proposed. One area of focus for comments around this reform is likely to be the trade-off between the value of giving participants more flexibility to quote and trade versus an increase in complexity and “noise” that may be associated with very narrow ticks. 

Investors of all types will benefit the most from the recently proposed reforms as this modernised market structure will help to drive further competition among brokers, market makers, and exchanges alike.  

Why has the SEC taken so long to move into best execution and what will the framework change? 

Based on the SEC’s comments, the intention of this proposed reform is not to take the place of FINRA or MSRB best execution rules. One point of comment will likely be the potential for confusion or overlap and questions about how the different standards may coexist. Given the importance of the best execution principle to investor protection, it makes sense that the SEC would want to consider having its own rule on that topic. 

Are there any further changes you’d like to see?  

We believe the reforms proposed by the SEC represent a constructive and positive effort to improve transparency, increase competition, and ensure that investors can access the best prices available in the market. Ultimately, modernising regulation ensures that market competition among brokers, market makers, and exchanges continues to benefit investors. 

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Feldman, who will oversee the exchange’s day-to-day operations, including business analytics, market operations and product development, succeeds Daniel Ciment, who has moved on from IEX to take up a role with institutional market access and trading platform for crypto assets, Elwood Technologies.

IEX also announced that Matt Weinberg will assume the role of head of business development. Both Feldman and Weinberg will report to IEX president and co-founder, Ronan Ryan.

Ryan said Feldman had been instrumental to the growth and success of IEX since its inception as a founding member of the team. “He has continually impressed us with his intellect, grit, and unparalleled ability to lead. Similarly, Matt Weinberg has played an important role growing client relationships and navigating a changing marketplace.” 

Feldman was part of the original team that built IEX Exchange in 2012, which was set up to mitigate the effects of high-frequency trading. He joined the company as a business analyst, before taking on new responsibilities over time.

In 2015, he was named head of business analytics, which analyses market trends, product performance and client experience. In this role, he partnered with the business development team to help optimise client experience and trading performance.

His team also informed the design and development of new exchange products and order types. In 2018, Feldman added market operations to his remit, which included oversight of client connectivity and trading operations.

Feldman began his career at Royal Bank of Canada (RBC) where he worked on the US Equities Electronic Trading Desk as a market structure analyst. 

“It’s been an honour to work with an exceptional team at IEX from day one and I’m proud to continue my journey here as COO for the Exchange,” said Feldman on his new role at the company. “We’ve worked hard to bring innovation and excellence to a storied industry where change seems to be the only constant. This is an exciting time to be at IEX and take a leadership role.”

Weinberg joined the business development team in 2019 and applied his deep knowledge of institutional trading to help clients optimise their trade performance using IEX Exchange products.

He also serves as co-chair of IEX’s social impact committee, Think Big, Do Good. Prior to IEX, Weinberg spent 21 years at AllianceBernstein where he served as senior vice president, managing director of institutional trading and vice president of institutional equities.

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