November 2, 2015
The US has a remarkably complex market structure of equities, in many ways fed by the prevarications of Reg NMS and other prescriptive functions. Despite this level of regulation, or perhaps partially on account of it, the US also has the world's most lively equity culture - which is predominantly driven by the US spirit of free enterprise.
In the exchange universe, the move away from purely mutualised clubs to for profit enterprises has been a hugely successful one for the world's industry of capital formation and enablement of investment, trading and risk transfer. Moreover, there is a clear need for experimentation in the models for markets as we look for the best possible ways to transact that helps all investors large and small access the investment universe and also delivers the best possible deal to those corporations which are eager to grow their business, whether large or small, through public equity investment.
Having written "Capital Market Revolution!" in the early dawn of electronic markets (published 1999 by FT Prentice Hall) as a primer on how electronic markets would change (and fundamentally improve) the process of price formation and orderly investment, I am still amazed by how much progress has been made in many areas.
At the same time, we are still only somewhere around the Ford Model T era of electronic marketplaces and the for profit ethos of entrepreneurs in the classic American mould such as Jeffrey Sprecher at ICE has made a fundamental impact upon the world's markets.
It is impossible to compare the comparatively rather moribund markets of the pre-internet age with those where investors can now gain access in real-time via the internet and at much lower brokerage cost than was historically the case. In a broad sweep this has been entirely for the betterment of ricing, risk transfer and the well-being of investors. Clearly, however, some bumps have emerged in the carpets and we cannot rest on our laurels in the quest for the best deal for investors and public companies.
In the US equity market space, incumbents have struggled and it has been interesting to see how the NYSE was eventually acquired once it had lost management direction. At the same time, while there are many platforms, the differences in models have tended to be somewhat granular.
In this respect, I am therefore writing to the Commission and humbly requesting that you review favourably the application by the IEX platform to upgrade its current standing to a full blown exchange per its application to that end.
The management of the platform have not merely considerable experience commensurate with handling the responsibility which a full exchange licence brings but, they are, moreover, amongst those fine thinkers in the vanguard of trying to deliver refreshingly new market models to improve the efficiency of the world's greatest free market culture.
I firmly doubt there is ever a one size fits all provider which can deliver every benefit to every user and the complexity of successful societies and their structures suggest a multiple of models and operations coexisting are best for society.
In this respect, the IEX, born of fresh, innovative thinking delivers a fascinating new approach to the market structure which is positive for investors, good for markets as a whole and ought to be entirely coherent in delivering a better deal for investors in a competitive marketplace where incumbent exchanges new and old, themselves recognise the need to be progressive.
The IEX model is complimentary to the existing structure in US markets, delivering an element of unique customer choice backed by strong management and an already diverse user base which leave me eager to endorse its application for an exchange licence in order that we may see the US market structure continue to flourish going forward.
In every respect, the IEX proposes interesting and innovative approaches to delivering a level playing field for all forms of market user; in market access (and processes for eroding predatory high frequency trading), in trading fees and in data fees (or lack thereof). I believe it stands to reason that a market player which has already demonstrated its ability to deliver as a trading venue, deserves the right to be a full blown exchange.
Thank you for considering my comment letter. I applaud the Securities & Exchange Commission for its dedication to delivering a sound market structure in the United States of America which has impacts for many investors and market practitioners, myself included, throughout the world.
With all best wishes,
Patrick L Young
CEO DV Advisors (specialists in market infrastructure investment)
Publisher: "Exchange Invest - 'the newsletter of financial infrastructure'"