Right, that makes sense, but Katsuyama and Lewis both present IEX as a morally superior, cleaner stock market. It makes sense that large block traders would want a different way to do large block trades, but why not just see it as an alternative financial product that has some demand just like the regular stock market, instead of making it a moral issue? I guess my question is, do the people who work at IEX drink the Kool Aid?
From some content presented in Flash Boys, a question:
Why would large block traders like to trade with someone pinging the market for 100 buy/sell orders, waiting for discovery, and then changing the price on other markets from information gained from these pings? If the market were rid of these pings, as the 350ms delay is intended to do?
Or to put the same question another way, why would a large block trader not like all trades being done at the same price or at a better or equal price on other exchanges (discovered by IEX) rather than some of the block done at the original price and the rest done at a higher price because 'liquidity' was provided by HFTs driving up/down prices on other markets and then selling/buying from the large block trader this 'liquidity'.
"In particular, large block buyers, who previously got to take advantage of inefficient price discovery to get better prices have been negatively impacted. It is in their best interests to make it possible to buy a very large amount of traded products without the price changing."
Throwaway because it would certainly not be kosher for me to comment on this, but:
There are people who work at IEX who do not "drink the Kool Aid" and have been critical in private industry discussions about Katsuyama's statements.
Additionally, IEX actively solicits trading in their pool from HFT firms. For one, these same people understand that it is difficult to match the quality of other modern US equity markets without those participants. Moreover, it's hard to build appreciable market share (% of marketwide volume traded) without electronic trading, which is how their business makes money and grows in valuation.
I don't know enough about IEX to know whether the below is true. If IEX has this 'magic shoebox' mechanism in place, it might follow that they care about establishing a fair exchange in other ways too. There are hundreds of ways in which HFT firms profit from understanding the architecture of various exchanges. In some (many?) cases, HFT firms know more about the exchange architecture than the exchange does. The 'shoebox' addresses just one (mostly outdated) source of HFT competitive advantage.
Perhaps employees of IEX drink the koolaid because the exchange actively seeks to eliminate architectural areas of unfairness. The only thing publicized is the 'magic shoebox', but perhaps there are many more such features. Again, this is just conjecture.
