2016 in Review: America’s Newest Stock Exchange
Emerging trends from IEX’s first months
As 2017 kicks off — four months since IEX fully launched as an exchange — we are excited to share new, data-driven insight into the trading dynamics and quality of execution on IEX.
All executions on exchanges are marked with exchange codes when disseminated over the public Securities Information Processor (SIP) data feeds. This “Trade and Quote” (TAQ) data makes it possible to compare the trading dynamics on IEX to those of the other exchanges.
Over the past few months, data analysis completed by both IEX and other exchange operators has revealed a number of key trends with respect to the activity and impact of trading on IEX:
IEX Leads in Bats Analysis of Effective Spread
Bats, which operates four equities markets in the U.S., has an “Execution Quality” page on its website that is updated using new SIP data on a monthly basis.
The charts on the Bats page rank the exchanges by their “effective spread” — which compares the execution price to the midpoint of the National Best Bid and Offer (NBBO) — for top symbols in different categories. A lower effective spread indicates that more volume is executed near the midpoint for that stock, often viewed as the fairest price.
In every chart included on the Bats page, including analysis of the S&P 500, top corporate issues, and top exchange-traded products, IEX shows the lowest effective spread for the most symbols. For the S&P 500, for instance, IEX is ranked first for 436 of the 500 symbols, far more than any other exchange. Essentially, this data shows that trades are typically executed at a “better price” on IEX than on any other exchange in the sense that they are more likely to receive price improvement versus the far side of the NBBO.
IEX is the Second Largest Midpoint Exchange
We examined the TAQ data further and found that just a few months after launching as an exchange, IEX is already the second largest exchange by midpoint volume. The concentration of midpoint volume on IEX is a large part of why the effective spread on IEX is so low.
This further demonstrates our unique value proposition: a market that is designed to effectively combine exchange trading with quality midpoint executions.
IEX Midpoint Trades Create Less Market Impact Than Those On Other Exchanges
Finally, we compared the NBBO of midpoint executions to the NBBO immediately after the trade in order to analyze the impact of IEX’s midpoint executions.
We found that IEX has the HIGHEST % of trades (among exchanges) where the NBBO midpoint at the time of the trade matched the NBBO midpoint immediately afterward (at the 1 millisecond, 10 milliseconds, 100 milliseconds, and 1 second marks).
Over time horizons longer than one second, share prices and NBBO midpoints are likely to change independent of the trade, causing all exchanges to converge.
In other words, for trades at the midpoint on IEX, the stock price is less likely to move after the trade compared to other exchanges. Whether your order adds or removes liquidity, a midpoint execution on IEX is the least impactful amongst exchanges. This is a major benefit which helps IEX attract midpoint liquidity.
How Does IEX Achieve All of This?
IEX is the only exchange that has a combination of the following three features designed for our clients’ protection:
- A matching engine informed by direct feeds from all exchanges to determine the midpoint (with the SIP as a backup)
- IEX Discretionary Peg (“D-Peg”), which is designed to provide an optimal midpoint execution on an exchange and also to protect against trading at the midpoint during an adverse price change
- The IEX Speed Bump, which complements D-Peg and also deters other types of high-speed opportunistic strategies
To our industry partners: we appreciate your support to date, and please let us know if there are other data points you would find interesting and helpful to you in your venue analysis and routing decisions discussions in 2017.
IEX is the Investors Exchange: a fair, simple, and transparent stock exchange dedicated to investor and issuer protection. Built on the belief that every investor is entitled to the same right to trade on equal terms on every single trade, IEX is on a mission to level the playing field by eliminating unfair advantages from the markets.
On September 2, 2016, IEX launched as America’s newest stock exchange, trading all U.S. National Market System stocks, and regularly matches over 100 million shares daily with a notional value of over $5 billion. IEX plans to begin listing publicly-traded companies in 2017.