IEX Group struck back at critics of its bid to become a U.S. stock exchange last week, including the New York Stock Exchange and BATS Global Markets, which have accused their potential rival of skewing facts to help win approval.
"IEX has not set out to misrepresent anything through intent, negligence or recklessness. We stand by our words," the company, which currently operates a private trading platform, said in its fourth such letter to the Securities and Exchange Commission.
IEX has been a magnet for controversy since March 2014, when it was featured in Michael Lewis's "Flash Boys: A Wall Street Revolt." The book claimed exchanges reap huge profits by giving high-frequency traders systemic advantages over other investors and it chronicled IEX's efforts to create what it said was a more even playing field.
A "speed bump" slows orders to IEX by 350 millionths-of-a-second, allowing ever-changing prices to be verified before sophisticated, opportunistic traders can act on stale prices, effectively queue-jumping, IEX says.
The New York-based startup's exchange application has generated hundreds of comment letters since it was submitted to regulators in September, from investors, trading firms, academics, and potential rivals.
The vast majority have been positive, saying the market has become too preoccupied with speed and that a model that de-emphasizes it has merit.
But some have been scathing, saying regulations prevent exchanges from slowing orders and that when IEX itself sends orders, they bypass the speed bump, giving IEX an unfair advantage. The head of NYSE-owner Intercontinental Exchange <ICE.N> even called IEX "un-American."
IEX has also drawn the incumbents' ire by criticizing the practice of giving customers access at different speeds based on price, and claiming they have their own built-in advantages.
"IEX has repeatedly demonstrated, through its public misstatements, its public relations campaign and its reckless misrepresentations to the SEC and the public, an inability to satisfy the basic tenets of being a national securities exchange," BATS said in a letter on Feb. 11.
IEX said its latest response was to "address these misunderstandings and to avoid further miscommunication."
No one would disagree that exchanges are relying more on revenues from "ever-rising, fees for access and information," as opposed to revenue from trading fees, it said, adding that was not ideal for exchange members, issuers, or investors.
The SEC has until March 21 to decide on IEX's application.