Citadel Securities has submitted a letter to the US Securities and Exchange Commission urging the agency to reject IEX Group’s proposal to launch a new options exchange. The letter warns that IEX’s planned quote-cancellation mechanism combined with an intentional execution delay would “result in fundamentally unfair and unlawful quoting practices” that could “strip away investor protections” and create “illusory quotations” designed to mislead market participants.
At the heart of the dispute is IEX’s plan to introduce a “speed bump” — an intentional delay that pauses order executions — alongside an algorithm that can cancel or reprice displayed quotes during this pause. Citadel Securities argues that this approach would “enable IEX market makers to post quotes they do not intend to honor,” effectively luring orders that are subsequently rejected or filled at worse prices. As the letter states, this creates “a scenario in which displayed prices are not actionable,” undermining the fundamental principle that displayed quotes should be firm and accessible.
In a statement to Traders Magazine, John Ramsay, Chief Market Policy Officer at IEX, said: “It has been well established by the SEC and Federal Court that IEX innovations that protect from latency arbitrage help investors and do not harm them. This will be IEX’s fourth time defending our innovations and we have a ten-year track record of execution quality and ample data to support our proposal.”
“IEX’s proposal would promote competition by limiting the ability of a small group of firms to tax liquidity through latency arbitrage ‘pick off’ strategies,” Ramsay continued. “We look forward to, once again, vigorously defending our proposal and working with the industry to move forward with our Options filing.”
In its letter to the SEC, Citadel Securities said “investors routed to IEX will often receive inferior executions, exposing them to unnecessary risk and diminished price improvement opportunities.” By leveraging the Options Order Protection Rule — which requires brokers to send orders to exchanges displaying the best prices — IEX would compel brokers to route customer orders to a venue where quotes could be illusory and fleeting, disadvantaging the very investors the rule is designed to protect.
The letter further criticizes what Citadel Securities calls IEX’s lack of transparency and data in support of the proposal. “IEX has not provided sufficient data demonstrating the impact of its quote cancellation mechanism,” Citadel Securities stated, noting that “market participants are left unable to evaluate the scope or scale of harm.” The market maker warned that IEX’s ability to unilaterally adjust the parameters governing quote cancellations adds another layer of uncertainty and risk.
From a regulatory perspective, Citadel Securities said that the proposal conflicts with the Exchange Act’s requirements that exchanges not “discriminate unfairly” and must “promote fair and orderly markets.” The letter asserted, “IEX’s mechanism creates a selective advantage for its market makers without corresponding obligations, skewing the playing field and destabilizing the options market.” The firm cautioned that if approved, this approach could “set a dangerous precedent” encouraging other exchanges to adopt similarly harmful quoting practices, ultimately eroding investor confidence and damaging market integrity.
Citadel Securities called on the SEC to subject the proposal to rigorous review, stating that “the Commission must not be complicit in enabling a market structure that dismantles transparency, fairness, and competition.” It urged the SEC to treat IEX’s filing as a new rule proposal, requiring full public comment and a thorough assessment of potential risks.
