As a matter of business strategy, it was a masterful move on the part of IEX founder Brad Katsuyama to play the plucky protagonist in Michael Lewis's “Flash Boys,” a jewel of pop-finance writing that cast high-speed traders and the exchanges that enable them as a shadowy cabal of rip-off artists. But it was pure luck that when Katsuyama moved to make his exchange legit, the New York Stock Exchange stepped in to play his foil. Since IEX first applied to join the ranks of licensed public exchanges, NYSE has played the perfect villain, comparing the upstart to Seinfeld's bullshit non-fat yogurt shop and calling its rival “un-American.”
It wasn't just words. In filings with the SEC aiming to block IEX's application, NYSE argued that the exchange's trademark speed bump, a 350-second delay intended to trip up devious arbitrageurs, would act “to the detriment…of a fair and orderly market.” NYSE's lawyers compared IEX to a speed limit selectively applied to cars on the Autobahn. Such a rule “would not create a safer Autobahn, it would create a calamity.” Despite of NYSE's warnings, IEX went live in June. No casualties have been reported.
Now NYSE has moved on from conjuring images of mangled limbs and twisted steel with an announcement Wednesday that it will put an identical speed bump on one of its own exchanges, the small- and mid-cap NYSE American. In doing so, NYSE has tied a bow on the IEX narrative, perfectly completing the first-they-laugh-at-you-then-they-fight-you-then-they-copy-you-down-to-the-millisecond cycle.
“As U.S equity markets have become increasingly complex due to fragmentation and dark pools, we are committed to providing listed companies, investors and market participants with more choice on how they list and trade with us in a way that best meets their needs,” NYSE President Tom Farley said in a statement.
How many milliseconds until IEX introduces a feature to compete with NYSE's new speed bump? It's only a matter of time.
UPDATE: IEX gets it.