(Bloomberg) — Wall Street is showing more signs of plugging into IEX Group Inc., the dark pool that says it has the antidote to speed traders.
IEX, started by the heroes of Michael Lewiss book Flash Boys, handled 23.9 million shares yesterday, up 27 percent from the daily average in March. While IEX accounts for less than 1 percent of total U.S. volume, the five-month-old platform has more trading than four of the 13 American exchanges, including IntercontinentalExchange Group Inc.s NYSE MKT.
Inside IEX: The Buyside Takes on HFT
Gathering users is one of the challenges faced by Brad Katsuyamas alternative venue, which uses time delays to cordon itself off from strategies it deems exploitative. Brian Barish, a money manager at Cambiar Investors LLC, says markets like IEX are the future of equity trading.
There are a lot of people interested in working on an exchange or dark pool that flash traders wont be involved with, Barish, who helps oversee about $10 billion as president and chief investment officer of Denver-based Cambiar Investors, said yesterday in a phone interview. As the volume builds, theres more value in executing there versus other places, he added.
In addition to NYSE MKT, the IEX market had more volume yesterday than the Chicago Stock Exchange, the National Stock Exchange and the CBOE Stock Exchange, according to data compiled by Bloomberg. It was just behind Nasdaq OMX PSX, where 32.5 million shares traded.
Lewis, Katsuyama
We are encouraged that brokers continue to make adjustments in their routing decisions to send more flow as IEX market share increases, Gerald Lam, a spokesman for New York- based IEX, wrote in an e-mail. We have looked to provide the fairest trading experience for all of our participants and our volume growth reflects the quality of trading happening on the IEX market.
High-frequency traders have been under unprecedented scrutiny following publication of Lewiss book, which says the firms helped rig the $22 trillion U.S. stock market. The story centers around Katsuyama, president and chief executive officer of IEX, which opened in October.
One or two other dark pools will come along and replicate what IEX is doing, and most of the liquidity will move to those, Barish said. Once that happens, there will be much less for flash traders to work with.
IEX said last month that Goldman Sachs Group Inc. was the biggest broker on the platform. Goldman Sachs told employees in a memo that it would be best for the overall market if IEX achieved critical mass, even if that results in reduced volumes on its own dark pool, known as Sigma X.
Increased Scrutiny
The bank is studying shutting down Sigma X, the Wall Street Journal said this week. Tiffany Galvin, a spokeswoman for the New York-based firm, declined to comment on that report.
Debate has raged for weeks about high-frequency trading. In March, New York Attorney General Eric Schneiderman said hes scrutinizing practices that give some computerized firms a speed edge, while regulators in Washington have also said the issue should be examined.
High-frequency trading comprises a diverse set of software- driven strategies that have spread as computer power grew and regulators tried to break the grip of centralized exchanges. They usually employ super-fast computers to post and cancel orders at rates measured in thousandths or even millionths of a second to capture price discrepancies on more than 50 public and private venues that make up the American equities market.
Firms using the tactics account for about half of share volume in the U.S., a statistic that shows their pervasiveness and hints at the obstacles faced by proposals to rein them in. IEX has become the most visible challenger.
The publicity that theyve received has been a positive driver of volume on IEX, Rich Repetto, an analyst at Sandler ONeill & Partners LP in New York, said yesterday in a phone interview. It has some unique features that are definitely hitting a chord with the investment community and traders.
