HFT Thrive off complexity

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Firm Involved

  • IEX

Year of the event

2016

Description of the case

IEX became an approved stock exchange in 2015. Two particularities are noteworthy regarding this stock exchange: it introduced a speed bump designed to prevent so-called “front-running” by HFT. It also introduced a complex order type called D-PEG. All this complexity leaves IEX as a marginal actor of the sector, with the most volume being dark-traded (20% lit volume), and with HFT such as Citadel regularly top trader. In addition, other stock exchanges also started their own DPEG/Speed bump, with less “pure” goals than IEX.

Take-aways

  • Introducing complexity creates even more unfair treatments.
  • HFT always end up winning from added complexity.
  • Good intentions sometimes end up harming the market.