The Katsuyama Revolution Continues

Katsuyama & Team at IEX
Katsuyama & Team at IEX

The Wall Street Journal carries an update this morning on the main protagonist of Michael Lewis’ recent book Flash Boys, Brad Katsuyama and his newly launched (October 2013) exchange known as the Investor’s Exchange (IEX).

One of my main questions left after reading the book is the viability of this newly launched exchange. Katsuyama & his team seek nothing less than the irrelevance of both dark pool equity trading and high frequency trading on equity exchanges, a mighty set of targets. Because Lewis published Flash Boys just a few months after the exchange’s launch, we’re left wondering whether Katsuyama’s revolution will happen or not.

As of today’s article, Katsuyama carries on, applying to expand the IEX into a full-fledged stock exchange. Most importantly, he has set the rules of the IEX so that traditional broker-dealers (The Goldmans and Morgans of the world) trade for free – to encourage them to bring their trade flow in high volume to the IEX, while outside firms – most pointedly we assume high frequency trading firm – all pay fixed commissions per trade.

This second part is a key feature of IEX, which is built to counteract the conflicted cost and fee structures of other equity exchanges which pay for order flow in a convoluted – but probably investor-unfriendly – way.

The main thesis of Flash Boys is that the combination of dark pools – in which broker-dealers did not disclose who had access to deal flow and in what manner – and the complicated set of fees paid or received in different equity exchange – seems to have benefited high frequency traders at the expense of slower market participants.

From what we can glean from the article, the Katsuyama revolution rolls on.

Please see related book review for Michael Lewis’ Flash Boys

also see related book review for Rishi Narang’s Inside the Black Box


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I founded Bankers Anonymous because, as a recovering banker, I believe that the gap between the financial world as I know it and the public discourse about finance is more than just a problem for a family trying to balance their checkbook, or politicians trying to score points over next year’s budget – it is a weakness of our civil society. For reals. It’s also really fun for me.

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