Criticism mounts on IEX application

The US exchange giant said that IEX could get hauled into long legal battles if its application to become an exchange is signed off.

The start-up trading venue has attracted controversy from the onset due to 350- microsecond latency inherent in its market. The delay exists to reduce a perceived advantage that high-frequency traders enjoy over other market participants.

The practise is at odds with current trader regulations which call for the best prices to always be immediately available to investors. But what qualifies as 'immediate'? The SEC has said, since IEX first made its ambitions official, that the box could be ticked by anything less than one millisecond. 

In a recent note to the SEC, Nasdaq claimed that the delay in the IEX system would not hold up to legal scrutiny. Nasdaq also shed doubt over the Commission's legitimacy in the matter, maintaining that the SEC was unqualified to give IEX the green light due to existing rules on designed delays.

John Ramsay, Chief Market Policy Officer at IEX, seemed unaffected by the arrow fired from the Nasdaq camp. Speaking in the Financial Times online, Mr Ramsay said:

"The incumbent exchanges have lost the debate... and Nasdaq'a latest salvo is more sabre-rattling in an effort to stave off competition at all costs."

While academics and asset managers have shown support for the ambitious trading platform's intentions, Nasdaq joins the New York Stock Exchange and Citadel in a chorus of criticism. 

Those against the latency say that it could herald a new dawn of "speed bump" venues which would open doors to system abuse while regulators struggle to keep up. 

Calls of foul play on Nasdaq's part could be attributed to a case of sour grapes. Just four years ago the exchange stepped down from a move to implement a similar delay due to fears that the application would not survive regulatory scrutiny.

It is expected that a decision will be made on the IEX case in mid-June.