Is SEC denying IEX permission to be a national securities exchange?
[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]T[/dropcap]oday is a dark letter day in the history of the United States Stock Market. The Securities Exchange Commission (SEC) waited till the end of the day to release a finding on IEX application to become a Stock Exchange, saying in a roundabout way that it is denying permission.
The whole exercise seems to have been intended to somehow poke holes into the IEX’s trading platform and try and literally interpret Regulation National Market System (NMS) and say, “In order for an exchange to operate as an “automated trading center,” it must, among other things, have “implemented such systems, procedures, and rules as are necessary to render it capable of displaying quotations that meet the requirements for an ‘automated quotation’ set forth in [Rule 600(b)(3) of Regulation NMS].” Rule 600(b)(3) defines an “automated quotation” as one that:
Permits an incoming order to be marked as immediate-or-cancel;
Immediately and automatically executes an order marked as immediate-or-cancel against the displayed quotation up to its full size;
Immediately and automatically cancels any unexecuted portion of an order marked as immediate-or-cancel without routing the order elsewhere;
Immediately and automatically transmits a response to the sender of an order marked as immediate-or-cancel indicating the action taken with respect to such order; and
Immediately and automatically displays information that updates the displayed quotation to reflect any change to its material terms.
[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]M[/dropcap]y preliminary read of the finding tells me that SEC is quoting IEX’s design – specifically, its Point-of-Presence (“POP”) and “coil” access delay as being the reason why IEX cannot comply with Regulation NMS! Wait a minute, the coil delay was put in place by IEX to level the playing field, so High Frequency Trading (HFT) firms cannot front run the orders!
This ruling has deep implications. What the average public is perhaps not realizing is the amount of legal robbery being committed by a select few in the name of HFT, to systematically destroy the one institution that US can be proud of. Alexander Hamilton is probably rolling in his grave! If unchecked, every Mutual Fund, Pension System and any other annuity plan known to mankind is at risk as HFTs will chip way at Average Joe’s savings, one cent at a time.
Investors will see their savings get minimal gains. The Federal Reserve should raise the inter-bank lending rates such that the average savings account can yield 5% interest and allow a one-time free withdrawal of their 401 (K) and IRA amounts into a Bank account. Even that is risky because the four largest banks in the US hold derivatives of close to $70 trillion, about 4 times the size of US GDP. Any minor fluctuation/ tremor, and these banks will be back with a begging bowl, asking for a bail out.