January 11, 2016
Dear Mr Fields,
I appreciate the opportunity to share my views regarding Investors' Exchange LLC's ("IEX") exchange application.
Many of the comment letters submitted appear to be motivated by malice and coordinated by an activist here: http://www.nanex.net/aqck2/4709.html
The above-cited article encourages uninformed masses to submit bogus comment letters. It encourages the author's followers to copy sample comment letters ad verbatim, and goes to great lengths to suggest ways that an uninformed writer could incorporate superfluous terms, such as "protected quote", "quote fade" and "internalization", in his letter to sound intelligible.
The perpetrator seems to acting out an agenda to create a warped appearance of overwhelming numbers in support of his own views. Treating this as a social media platform, as he is effectively doing here, is highly inappropriate.
I would recommend that the SEC take such flagrant violation of due process seriously, and filter out these comment letters for validity.
With that said, I believe that the Commission carefully consider two issues that IEX does not appear to have satisfactorily addressed.
1. An additional exchange would bring further market fragmentation to the U.S. equities market, and incur a negative externality to market participants. This further entrenches the incumbent who can afford market data from and sophisticated smart order routers.
Suppose, for sake of argument, that IEX's marketed claims were true. Even so, it is still highly improbable that the marginal savings in execution costs for the limited population that use IEX would exceed the wide increase in infrastructure costs for all market participants as a result of the further fragmentation.
2. IEX's matching algorithm violates price-time priority by giving preference to broker orders. Broker preferencing is simply another form of order flow internalization, a questionable practice which removes transparency from the public marketplace and disadvantages the user who trades on the public marketplace. This will have the inequitable effect of attracting more order flow to large broker-dealers who benefit most from internalization. This remains a highly debatable issue in Canada's equity markets and we should tread carefully around this issue.
I welcome IEX's approach to pricing trades based on the proprietary feeds, and must compliment their entrepreneurial efforts. However, I am skeptical that granting IEX exchange status will bring a net benefit to the U.S. equities market.
Yours faithfully,
Roger Loh