Securities and Exchange Commission gives green light to IEX Options debut, disregarding efforts by Citadel to obstruct the move
The United States Securities and Exchange Commission (SEC) has given the green light for the launch of "IEX Options," a new platform by IEX Group, a financial technology company known for its focus on fair and transparent trading.
IEX Options will introduce an Optional Options Risk Parameter (ORP), a feature designed to cancel or reprice market-maker quotes deemed stale. This move is aimed at enhancing market efficiency and ensuring that quotes remain current and relevant.
Brad Katsuyama, the founder and CEO of IEX Group, expressed gratitude for the SEC's approval of the IEX Options proposal. He reiterated IEX Group's commitment to innovating for performance and superior execution quality.
However, the announcement has not been met with unanimous approval. Large market makers and exchanges, including Citadel Securities, have raised concerns about the ORP, arguing that it could enable quote "fading" and potentially harm investors.
Citadel Securities, in particular, has been vocal in its criticism, claiming that IEX's quote-canceling scheme steals money from millions of investors. They argue that the ORP and its default "firmness" compel brokers to route orders to IEX when it shows the best price, even though those quotes may soon be cancelled or repriced. This, they claim, exploits price discovery generated on other exchanges and forces unwanted interactions.
On the other hand, smaller market makers, academics, and trading firms, such as Virtu, have supported IEX's proposal. They believe it will curb latency arbitrage and improve displayed liquidity, potentially benefiting retail investors. Virtu called the design of IEX Options "well-intentioned" and potentially beneficial for retail execution.
Daniel Schalepfer, representing many mid-tier liquidity providers, stated that Citadel's campaign against IEX's option market proposal was not about concerns related to fading liquidity, inaccessible quotes, or the welfare of retail investors.
IEX Options will feature a 350-microsecond symmetric access delay, aligning with IEX's commitment to a fair and level playing field for all market participants. The SEC found IEX's proposal to be consistent with the requirements of the Act and applicable rules and regulations.
Despite the ongoing debate, IEX Group has thanked a broad range of industry participants who supported their options filing. The launch of IEX Options is expected to bring about significant changes in the options trading landscape, with implications for market efficiency, fairness, and investor protection.
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