The time it takes for trades executed at U.S. exchanges such as IEX to be published on Nasdaq’s consolidated feed of stock prices will shrink drastically following an overhaul that takes effect Monday—to less than 20 microseconds, down from 480 now.
As a result, a high-speed trading firm could learn of trades done on IEX and quickly act on that knowledge at other exchanges where prices are just millionths of a second out of date, market experts say. That sort of front-running is exactly what IEX was set up to prevent.
“The fact that this shortcut is out there does negate to a certain extent IEX’s whole model,” said Richard Johnson, vice president for market structure and technology at Greenwich Associates.
IEX—whose founders, including Chief Executive Brad Katsuyama, gained fame as the protagonists of Michael Lewis’s book “Flash Boys”—set itself up as a place where investors could buy without disclosing their intentions to high-frequency traders who might use that information against them. It did so by setting up 350-microsecond delays on information coming in and out of IEX. The idea was that by the time a fast trader learned of a transaction executed on IEX, it would be too late to act on it.
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