Last Friday, the Securities and Exchange Commission was scheduled to rule on whether it would certify Investor’s Exchange—better known as IEX—as a national securities exchange. The backstory and aspirations of IEX were captured by Michael Lewis in his 2014 book Flash Boys. In it, Brad Katsuyama, a Canadian trader at the Royal Bank of Canada, came to believe that America’s stock market was rigged after watching high-frequency traders front-run other orders, using technology provided to them by stock exchanges. He went on to lead a team that developed a trading platform that thwarted high-frequency trading, which eventually turned into IEX—a new exchange that uses a 350-microsecond “speed bump” (which consists of 38 miles of coiled fiber-optic cable) so that all trades arrive in roughly the same amount of time.
Since IEX’s initial filing in September of last year, the SEC’s decision had already been delayed twice, in December and then again in March. There was a time when the decision would have been controversial either way, but as of last week, it was widely expected to be approved after The Wall Street Journal reported on Thursday that SEC staff recommended regulatory approval.
The SEC finally did announce its decision Friday evening, after markets closed, making IEX the first new standalone equities exchange to be approved since 2010. This means that IEX will no longer be a “dark pool”—a private exchange for securities trading—placing it in direct competition with the 12 other national public stock exchanges in the U.S. All three SEC commissioners voted to approve IEX’s bid, but Commissioner Michael Piwowar, a Republican, dissented on the decision to give IEX what’s known as a “protected quote”—which means brokers have to send their orders to IEX if it has the best price.