January 21, 2016
I am glad to be able to comment on the Investors' Exchange application for exchange status. I write because I noticed an area that it seems has not been addressed adequately.
In their comments some parties have attempted to create a spectre of unfair advantage from the fact that IEX's routing broker can trade with away markets before other participants learn of a partial-fill of an order on the Investors Exchange. Such a characterization as unfair is spurious and misleading. The IEX routing broker is acting only on behalf of a single customer order, and no part of the IEX system is making use of any information not already available to other participants with the exception of the presence of the order and its partial fill status. Since the routing broker is acting on that particular order's behalf, its knowledge of the presence of the order and the share quantity is not an unfair advantage: the order-submitting customer knew this information before the order crossed the "speed bump", and the routing broker, as his agent, must by necessity know this information.
It is true that the routing broker knows, and uses, something that other market participants cannot: it knows that the customer it is working for wants to trade stock at a particular price and quantity. But this knowledge is not something that other participants have a right to know -- they have no right to know the intention of the customer so they can race ahead of him to other markets. The IEX routing broker, as agent, must know it and should keep such knowledge private. The complaining parties may well regret that they wouldn't be able to read the minds of investors entering orders into IEX, but that is not a valid basis for the SEC to require IEX to modify its application.
Obviously some current market participants have a substantial interest in continuing to have imperfect fragmented markets so that they can continue to profit from low-risk intermediation between investors who have to use those markets or resort to dark pools. The Commissioners would do best to recognize that the public will likely believe, rightly or wrongly, that the SEC is beholden to those interests instead of the public good if the Commission rejects or requires modification of IEX's application.
Thank you for your consideration.