Update: Due to regulatory timelines, the implementation of the change discussed below is now expected in February 2021, pending SEC approval. Final dates will be announced via Trading Alert.
In mid-January 2021, we plan to update a part of the IEX Exchange architecture. The delay imposed on the dissemination of all outbound messages — including IEX market data and outbound order messages to Members — will be reduced from 350 to 37 microseconds — much closer to a real-time basis.
This is a positive development and one that we believe will enhance Members’ execution and risk management processes.
Pending the SEC’s approval of our proposed change, our Members and market participants will be able to receive and consume IEX’s order and trading activity data more quickly.
Outbound Delay in Context
The outbound delay was introduced with the launch of the IEX ATS in October 2013. Its purpose was to limit the potential that, when a Member used a serial routing strategy, IEX data could be a source of information leakage.
As we note in our rule filing:
“[the outbound latency] was designed to slightly delay news of an execution to the participants to the execution and to IEX’s Data Products. The outbound latency thus enables a market participant using a serial routing technique that executes a trade on IEX to avoid potential information leakage when subsequently seeking to access liquidity on other markets before news of the IEX execution could affect resting liquidity on those markets (e.g., potentially resulting in cancellations or re-pricing of such liquidity).”
Over the past few years, it has become commonplace for firms to use routing techniques that are designed to have orders arrive and execute almost simultaneously across venues. These routing techniques are designed to avoid signaling executions to the market in a way that would impact prices or available liquidity. As a result, we believe that the outbound delay is less relevant today and certainly the execution and risk management benefits of reducing the delay outweigh any protections that this delay might still provide our Members.
Following the update, all access to IEX Exchange — both inbound and outbound — will continue to be at our Point of Presence (“POP”) in the Secaucus NY5 data center. Our matching engine will continue to be housed at the Weehawken NJ2X data center. The distance outbound data must travel from our matching engine to the POP is what results in the remaining 37-microsecond delay.
Based on our analysis and informal feedback from Members, we think this proposed change will benefit our Members and consumers of our market data because it will enable them to receive information about trades executed on IEX much closer to a real-time basis.
The IEX Speed Bump
So, what does this mean for the rest of the IEX Exchange’s design?
The answer is: nothing.
To be completely clear, this in no way affects our core, foundational innovation, the inbound IEX Speed Bump.
While the inbound IEX Speed Bump was introduced to the market at the same time as the outbound delay — the two are often conflated — they have entirely separate purposes.
The IEX Speed Bump slows down messages coming into the exchange so that IEX can update prices before executing trades. The idea is that no market participant should be able to have a speed advantage over the exchange itself. The inbound Speed Bump enhances the efficacy of the IEX Signal and is essential to the high quality of executions on IEX Exchange.
That dynamic — that there is the potential for the fastest participants in the market to be faster than the exchange itself — is still very much present today (with no indication that that would change), so the IEX Speed Bump continues to serve its critical purpose.
Reducing the Delay
At least 10 days before the change is made, we will announce full details around the implementation of this update in a Trading Alert. Once the change is made, Members and consumers of our market data feeds can expect to see all IEX outbound messages and data about 300 microseconds — 313 microseconds precisely — faster than today. The dissemination of trade information from IEX to the SIPs is not subject to the outbound delay so this change will not affect what or how we’re reporting to the SIPs.
While there won’t be any required action by Members in conjunction with this update, some broker-dealers may choose to adjust how they receive and incorporate IEX data into their strategies. In particular, broker-dealers who are not currently receiving IEX market data directly from IEX Exchange, may wish to do so. For more information on accessing IEX market data, please go to our website.
For a complete description of the proposed change, please see our rule filing.
What's Next in 2021?
We learned a lot about how the financial markets react to global events in 2020 and this reinforced the importance of maintaining a resilient exchange infrastructure. As the market continues to evolve, new challenges and opportunities will arise — and we believe we will be able to meet them.
This coming year, we are looking forward to continuing to work with our broker-dealer and investor partners to continue doing what we do best — enabling them to trade more effectively and setting a new standard for trading performance. If you have questions or comments, please reach out, as always, to firstname.lastname@example.org.