The TRADE 59 - Q1 2019 | Page 54

[ M A R K E T R E V I E W | E X C H A N G E S ] ‘Exchanges owe us answers’ says IEX IEX becomes the first exchange operator to disclose its costs with a detailed report revealing incumbent exchanges are grossly marking up fees. I nvestors Exchange (IEX) has publicly disclosed its costs of producing market data and connectivity, suggesting that in- cumbent exchanges could be mark- ing up charges for such services by as much as 4,000%. Through a detailed review of the costs for IEX to provide depth of book market data, physical connectivity and logical connec- tivity, co-founder and CEO Brad Katsuyama said in a statement that “exchanges owe us all some answers”. IEX concluded in its review that for depth of book data products, incumbent exchange operators including NYSE, Nasdaq and Cboe, are charging fees that are between 900-1,800% more than IEX’s costs to offer the same product. In ad- dition, for physical connectivity in 54 // TheTrade // Spring 2019 data centres, IEX said incumbent exchanges charge fees that are between 2,000-4,000% more than IEX’s costs to provide the same connectivity. A spokesperson for NYSE told The TRADE: “While IEX is free to cherry pick and conflate their numbers, the fact remains that the all-in cost to trade on NYSE is lower than IEX.” Similarly, a spokesperson from Cboe said: “The IEX Group report fails to take into account signif- icant differences in transaction fees when comparing IEX with the leading exchanges that operate ful- ly displayed markets. By focusing exclusively on direct expenses the study overlooks the full range of costs incurred to attract displayed liquidity and operate trading platforms that produce valuable market data. It also ignores the sig- nificant value of exchange data that contributes to meaningful price discovery. Transparent markets are valuable to investors and our charges reflect that value.” “Interestingly the “free data and colocation model” offered by IEX is the most expensive exchange on a per- share basis.” PHIL MACKINTOSH, CHIEF ECONOMIST, NASDAQ The bold move by IEX makes it the first US exchange operator to publicly disclose its costs of produc-