Investors Exchange (IEX) Building A Market that Works for Investors. September 9, 2015

Transcription

1 Investors Exchange (IEX) Building A Market that Works for Investors September 9, 2015

2 FLASH BOYS: A WALL STREET REVOLT 2015 IEX Group, Inc. and its subsidiaries, including Investors Exchange LLC and IEX Services LLC. IEX Services LLC, Member SIPC/FINRA. All rights reserved. Subject to request for FOIA confidential treatment. Confidential and not for redistribution. 2

3 THE STOCK MARKET HAD BECOME AN ILLUSION 2015 IEX Group, Inc. and its subsidiaries, including Investors Exchange LLC and IEX Services LLC. IEX Services LLC, Member SIPC/FINRA. All rights reserved. Subject to request for FOIA confidential treatment. Confidential and not for redistribution. 3

4 DISCOVERY OF A PROBLEM DISTANCE NYSE Mahwah, NJ $ NYC BUY ORDER 100K shares AMD BATS Weehawken, NJ Direct Edge Secaucus, NJ 2 milliseconds NASDAQ Carteret, NJ LATENCY 2015 IEX Group, Inc. and its subsidiaries, including Investors Exchange LLC and IEX Services LLC. IEX Services LLC, Member SIPC/FINRA. All rights reserved. Subject to request for FOIA confidential treatment. Confidential and not for redistribution. 4

5 LATENCY ARBITRAGE WAS THE CAUSE OF THE PROBLEM DISTANCE NYSE Mahwah, NJ $ NYC BUY ORDER 100K shares AMD BATS Weehawken, NJ Direct Edge Secaucus, NJ 12,500 shares AMD 476 microseconds NASDAQ Carteret, NJ 15,000 shares AMD ~50-60% FILL RATES LATENCY 2015 IEX Group, Inc. and its subsidiaries, including Investors Exchange LLC and IEX Services LLC. IEX Services LLC, Member SIPC/FINRA. All rights reserved. Subject to request for FOIA confidential treatment. Confidential and not for redistribution. 5

6 WE COUNTERED SPEED BY SLOWING THINGS DOWN DISTANCE NASDAQ Carteret, NJ NYSE Mahwah, NJ $ NYC BUY ORDER 100K shares AMD BATS Weehawken, NJ Direct Edge Secaucus, NJ 290 microseconds 100% FILL RATES LATENCY 2015 IEX Group, Inc. and its subsidiaries, including Investors Exchange LLC and IEX Services LLC. IEX Services LLC, Member SIPC/FINRA. All rights reserved. Subject to request for FOIA confidential treatment. Confidential and not for redistribution. 6

7 EXCHANGES ARE NOT WHAT YOU THINK THEY ARE ILLUSION WALL STREET TIMES SQUARE REALITY MAHWAH, NJ CARTERET, NJ 2015 IEX Group, Inc. and its subsidiaries, including Investors Exchange LLC and IEX Services LLC. IEX Services LLC, Member SIPC/FINRA. All rights reserved. Subject to request for FOIA confidential treatment. Confidential and not for redistribution. 7

8 WHY DOES A STOCK EXCHANGE EXIST? JULY 27, 2009 MAY 6, 2012 AUGUST 9, 2010 MARCH 28, 2013 AUGUST 25, 2015 Direct Edge in Crosshairs of Flash Orders Debate Study Says Broker Rebates Cost Investors Billions NYSE Opens Mahwah Data Center CME, Nasdaq Plan High-Speed Network Venture Slow Dark Pools Cost Investors, Study Says The practice gives banks, hedge funds, and some dark pools, where orders are matched anonymously, an advanced look at order flow. The service helped spark Direct Edge's impressive growth, and was closely imitated early last month by formal exchanges Nasdaq Stock Market and BATS Exchange. Critics say they provide an unfair advantage to select participants, creating a "twotiered" market that undermines the confidence of those without lightning-quick computer trading software. In recent years, though, brokers have had another enticement that can pull them in a different direction: payments from stock exchanges in return for sending them business. The practice has attracted criticism from several industry participants and former regulators who say the so-called rebates that the exchanges pay Wall Street firms could give those firms an incentive to profit at the expense of investors. Now a new study using industry data says that the rebates could be costing mutual funds, pension funds and ordinary investors as much as $5 billion a year. The new data center features colocation space for trading firms seeking high-speed access to the matching engines. NYSE Euronext says it has sold out all the available colocation space in its first phase at Mahwah reported to be at least two 20,000 square foot pods. Three additional pods are planned as expansion space, for a total of 100,000 square feet of colocation space. CME Group Inc. and Nasdaq OMX Group Inc. have detailed plans to launch a wireless network joint venture in May that will beam stock and derivatives prices between Chicago and New York in fractions of a second. The service is pitched at highfrequency traders and Wall Street banks seeking a competitive edge using the data to place trades more quickly than rivals. The technological shortcomings can cost mutual funds and hedge funds millions of dollars over time, New York research firm Tabb Group plans to say in a release Wednesday. What they found is the Boston Company s orders at times were getting filled at prices that were suboptimal in some dark pools, meaning they could potentially have gotten a better result if a trade was carried out more quickly IEX Group, Inc. and its subsidiaries, including Investors Exchange LLC and IEX Services LLC. IEX Services LLC, Member SIPC/FINRA. All rights reserved. Subject to request for FOIA confidential treatment. Confidential and not for redistribution. 8

9 WHY DO EXCHANGES SELL FAST DATA AND TECHNOLOGY? 1. Exchanges sell Fast Data Those who pay will know of a price change before those who don t pay. The only way to profit from this is to trade quickly before others get the same information. 2. Exchanges sell Fast Technology That allow fast traders to profit from advanced knowledge. 3. This has enabled the rise of High Frequency Trading from ~25% of market volume to ~50% of volume 2015 IEX Group, Inc. and its subsidiaries, including Investors Exchange LLC and IEX Services LLC. IEX Services LLC, Member SIPC/FINRA. All rights reserved. Subject to request for FOIA confidential treatment. Confidential and not for redistribution. 9

10 WE DECIDED TO BUILD OUR OWN STOCK EXCHANGE - INVESTORS EXCHANGE MISSION STATEMENT: To become the most trusted and fair market operator in the world CORE VALUES: 1. Be Committed to the Mission 2. Be willing to challenge the status quo 3. Seek and Share Knowledge with a purpose 4. Act with Integrity 2015 IEX Group, Inc. and its subsidiaries, including Investors Exchange LLC and IEX Services LLC. IEX Services LLC, Member SIPC/FINRA. All rights reserved. Subject to request for FOIA confidential treatment. Confidential and not for redistribution. 10

11 BUT WE HAD NO MONEY! Potential Sources of Funds: Brokers / Banks Exchanges Mutual Funds / Hedge Funds / Public Companies Good partners x Creates potential conflicts of interest x Limits Disruption Cash rich x Competitor x Incentive to maintain status quo End users No Conflicts x Has Never Been Done It took 9.5 Months to raise our first round. But we had resolve to do it right, or it wasn t worth doing at all IEX Group, Inc. and its subsidiaries, including Investors Exchange LLC and IEX Services LLC. IEX Services LLC, Member SIPC/FINRA. All rights reserved. Subject to request for FOIA confidential treatment. Confidential and not for redistribution. 11

12 OUR RESOLVE PAID OFF: CONFLICT-FREE OWNERSHIP 2015 IEX Group, Inc. and its subsidiaries, including Investors Exchange LLC and IEX Services LLC. IEX Services LLC, Member SIPC/FINRA. All rights reserved. Subject to request for FOIA confidential treatment. Confidential and not for redistribution. 12

13 IEX CREATES A LEVEL PLAYING FIELD 1. IEX is a seasoned TEAM OF EXPERTS from large banks, asset managers, exchanges, and regulators 2. We SLOW DOWN highspeed traders to make our market safe for investors VS. 3. We AVOID CONFLICTS in pricing and operations of our market. FLAT FEE PRICING & SIMPLE MARKET VS. REBATE PRICING & COMPLEX MARKET 2015 IEX Group, Inc. and its subsidiaries, including Investors Exchange LLC and IEX Services LLC. IEX Services LLC, Member SIPC/FINRA. All rights reserved. Subject to request for FOIA confidential treatment. Confidential and not for redistribution. 13

14 IEX QUARTERLY GROWTH 2015 IEX Group, Inc. and its subsidiaries, including Investors Exchange LLC and IEX Services LLC. IEX Services LLC, Member SIPC/FINRA. All rights reserved. Subject to request for FOIA confidential treatment. Confidential and not for redistribution. 14

15 HOW TO CHANGE THE COURSE OF HISTORY START BY UNDERSTANDING WHY HISTORY REPEATS ITSELF Regulation INNOVATION Scandal Loophole TALENT Exploitation 2015 IEX Group, Inc. and its subsidiaries, including Investors Exchange LLC and IEX Services LLC. IEX Services LLC, Member SIPC/FINRA. All rights reserved. Subject to request for FOIA confidential treatment. Confidential and not for redistribution. 15

16 BREAK THE HISTORICAL CYCLE TO CREATE POSITIVE CHANGE v Regulation INNOVATION Scandal Loophole TALENT Exploitation Market- Based Solution 2015 IEX Group, Inc. and its subsidiaries, including Investors Exchange LLC and IEX Services LLC. IEX Services LLC, Member SIPC/FINRA. All rights reserved. Subject to request for FOIA confidential treatment. Confidential and not for redistribution. 16

17 WHAT CAN YOU DO TO CHANGE HISTORY? Ask Questions Ask what exchanges and dark pools your orders are trading in and ask WHY you are trading there Seek Transparency Work with brokers and exchanges to understand how each market is handling your order and providing a fair marketplace for investors Vote With Your Feet Take greater control of your orders and support solutions that are aligned with your interests Every Order Makes a Difference 2015 IEX Group, Inc. and its subsidiaries, including Investors Exchange LLC and IEX Services LLC. IEX Services LLC, Member SIPC/FINRA. All rights reserved. Subject to request for FOIA confidential treatment. Confidential and not for redistribution. 17

18 SOMETIMES DOING THE RIGHT THING CAN PAY OFF IEX Group, Inc. and its subsidiaries, including Investors Exchange LLC and IEX Services LLC. IEX Services LLC, Member SIPC/FINRA. All rights reserved. Subject to request for FOIA confidential treatment. Confidential and not for redistribution. 18

19 MAKING MONEY ALLOWS YOU TO DO MORE GOOD IN THE WORLD 2015 IEX Group, Inc. and its subsidiaries, including Investors Exchange LLC and IEX Services LLC. IEX Services LLC, Member SIPC/FINRA. All rights reserved. Subject to request for FOIA confidential treatment. Confidential and not for redistribution. 19

20 Investors Exchange Fair, Simple, and Transparent