If Wall Street does not get an unfair advantage, then Wall Street complains
Wall Street is already complaining about new regulations that require that financial advisors offer advice in the clients’ best interest. To Wall Street this regulation is totally unfair and a great burden, since financial advisors heretofore did not have to take the clients’ best interests into account and thus routinely recommended actions that provide a great return to the advisor, and to hell with the client.
And now Renae Merle reports in the Washington Post:
One of the most feared men on Wall Street recently gave a tour of his offices with confident glee. From one window on the 44th floor, there is a view of the Statue of Liberty. On the other side is One World Trade Center.
Brad Katsuyama, 38, has the only enclosed office on the floor, but he rarely uses it. Dressed in jeans and wearing a fleece vest, he slides easily among his nearly 70 employees.
“This is where the action is,” he says, pointing to a desk in the middle of a crowded room.
From here, Katsuyama has drawn the attention of some of the biggest names on Wall Street with his four-year-old company, Investors’ Exchange, or IEX. The idea behind the company is simple: Provide a venue for investors who want to buy or sell stocks where sophisticated high-frequency traders, who can make thousands of trades in a blink of an eye, do not have the advantage.
The firm was the hero of Michael Lewis’s 2014 book “Flash Boys: A Wall Street Revolt,” which argued that the markets are rigged against mom-and-pop investors. Stock exchanges once dominated by screaming brokers, scrambling to get the best price on a stock, have been taken over by computers and traders using complex algorithms to find an advantage — measured in fractions of a second. High-frequency traders, Lewis argued, could always stay a step ahead.
The book rankled many on Wall Street and thrust IEX into the spotlight.
Now, IEX could soon be competing against some of the oldest names on Wall Street, including the New York Stock Exchange, which is more than 200 years old. The Securities and Exchange Commission is expected to approve IEX’s application to become a registered stock exchange as early as Friday, a move that could shake up the institutions that have long dominated the way stocks are bought and sold.
IEX operates as a lightly regulated private one now, so investors cannot be forced to use it. That would change with approval, opening it up to a much larger market because traders have a duty to seek out the best price for their clients, be they pension funds or small investors.
“We have done everything we could possibly do. I feel content that we left it all on the field,” Katsuyama said.
IEX’s application has divided New York’s financial world and attracted high-profile detractors who say the start-up would add unnecessary complexity to the financial system and is asking for special treatment. IEX wants not only to slow down trades but also to process them in a potentially cheaper way, making it attractive to large pension funds or hedge funds that trade millions of shares of stock a day. Opponents worry that if the model catches on, it could be replicated across the industry.
Among its most strident opponents is Citadel, a massive hedge fund and securities dealer. . .