‘Flash Boys’ exchange IEX ramps up effort to cater to Reddit retail crowd, forms broker committee to improve stock-market structure

Greater than 10 million new brokerage accounts are estimated to have been opened within the first half of 2021, practically equaling the overall accounts opened final yr, in accordance with knowledge from JMP Securities. 

IEX has lengthy been trying to leverage its picture as a crusader for market integrity and equity in pricing. The corporate is billed as a champion to common buyers by advantage of Michael Lewis’s 2014 guide, “Flash Boys: A Wall Road Revolt,” which highlighted its efforts to thwart subtle high-speed merchants.

As part of its push for a better share of retail buying and selling, IEX plans, later this month or subsequent, to roll out improved methods for brokers to execute retail trades of not less than 100 shares on the so-called midpoint of bids and provides. In different phrases, midway between a inventory’s shopping for and promoting worth, which is taken into account a good means of executing trades and one which isn’t often supplied to common buyers.

IEX kicked off midpoint retail buying and selling again in 2019, however this time has included options that it hopes will make it simpler to establish retail trades, together with electronically flagging midpoint trades utilizing what it calls a retail liquidity indicator, or RLI.

IEX additionally has applied options to assist be sure that retail trades are genuine and aren’t coming from computer-driven buying and selling methods.

Wall Road’s regulator, the Securities and Trade Fee, measures the very best execution for shares by learning the costs supplied on so-called “lit” exchanges such because the Intercontinental Trade
ICE,
+1.71%
-owned New York Inventory Trade or the Nasdaq. However retail orders are more and more fulfilled on darkish exchanges and people orders aren’t used to estimate the official finest worth, referred to as the Nationwide Finest Bid Supply, or NBBO.

Ronan Ryan, president and one of many co-founders of IEX, advised MarketWatch that “retail on trade is under-tapped” and that pursuing retail buyers represents “a pure development for IEX.”

Amid the surge in retail buying and selling, IEX has turn out to be a continuously talked about identify on social-media websites similar to Reddit and Discord due to the notion that the corporate is preventing on behalf of common buyers. Some subtle buyers offer guides on how to “direct route” to IEX if buying and selling platforms provide that function.

Ryan mentioned that IEX’s retail program is nice for particular person buyers. “Retail are getting the fairer shake,” as a result of execution at midpoint costs tends to be one thing solely supplied to banks and establishments. IEX was based in 2012 by Ryan and Brad Katsuyama, its chief government, in addition to John Schwall and Rob Park.  

It’s unclear if IEX’s renewed try at attracting retail enterprise can be profitable.

Ryan, nonetheless, was optimistic that elevated communication with retail brokers by way of the RTAC would show fruitful for all events concerned.

“IEX is all the time working to align the pursuits of market individuals, and the RTAC is the most recent instance of that,” Ryan mentioned.

“Any retail quantity that we do on IEX is new enterprise,” he mentioned, including that he acknowledges that competitors for market share is heady on Wall Road. IEX is aware of “different exchanges are going to look to do related stuff.”

Uncertainty concerning the regulatory panorama could also be one issue that helps to drive retail brokers into better alignment.

SEC Chairman Gary Gensler has vowed to be a champion of particular person buyers.

Final month, Gensler made information when he mentioned that banning cost for order circulation was an possibility “on the desk.” In an interview with Barron’s, the SEC chief said the practice of cost for order circulation — whereby stockbrokers promote the privilege of fulfilling retail orders to market makers in return for a share of revenue — ends in “an inherent battle of curiosity,” and one the place retail buyers don’t see the very best execution, critics cost.

Enhancing buying and selling execution for retail could show to be a trigger célèbre of Gensler’s.

“IEX has a retail program, as do different exchanges, and regardless of their existence we’re nonetheless seeing the overwhelming majority of retail order circulation executed off-exchange,” Ryan mentioned.

“The hope is that with our upcoming new retail program and the creation of the RTAC, we will advance the market construction dialogue with retail brokers to work with them to give you options to resolve their liquidity wants and accomplish that on trade,” he mentioned.