Tuesday, 4 April 2017

IEX trading

IEX have long misled the buy-side about trading on IEX.

They have always said they're inexpensive, simple, transparent, and you don't need co-lo thanks to the magic shoebox coil. The truth has always been that they're expensive, complex, dark, and you need co-lo plus more. I've written about this previously, most notably in IEX - the good, the bad, and the ugly.

I'd just like to meander through a couple of updates to this story line.

You may be the last to know

SIP games


First, the SIPs, both CTA and UTP, have sped up considerably since I wrote that previous article. This means that your IEX trading is going to be at a big disadvantage if you don't have infrastructure at Mahwah, Carteret, and Secausus - along with the necessary RF links. Why? Because of SIP gaming. The SIPs are considerably faster now. There is a good chance that other traders will know about your trades before you, thanks to the IEX 350 microsecond delay, unless you're also cleverly listening to the SIP feeds.

Here are the SIP CTA and UTP latencies for February 2017:


Yes, it's an unholy mess for the IEX trader. Here's a lame little diagram I sketched up to show you the approximate latencies involved:

IEX verus the SIPs - click to enlarge
The unknown, without measuring, is the extra overhead in the hand-off from the IEX engine to the SIPs. I don't know if IEX's internal data is handed off from NY5, NJ2, Carteret, or Mahwah. If you know, let me know and I'll update this information here. Remember those SIP hand-offs are before the 350 microsecond delay all IEX customers have imposed on them by the speed-bump. It would make sense for NYSE and Nasdaq to pick up the data at NJ2 and transport it themselves. They really should offer that to IEX to ensure the SIPs perform at their best.

To beat some poor sucker dutifully waiting near IEX for their IEX market data, or trade info, you just have to be faster than that 350 microsecond POP delay. You may do that by listening to the SIPs. Faster SIPs have improved your chances of gaming that 350 microseconds pop delay, plus possibly the additional 15-20 microsecond engine to pop latency - depending on how the SIP hand-off takes place. It's not quite the easy, "don't need no co-lo" experience, is it?

So, if the IEX feeds to the SIPs are reasonable, then traders at Nasdaq & NYSE will have IEX quote and trade data at those locations before IEX customers near IEX. Also, if those customers use their RF links to send the data back to IEX, those traders may still have the data at IEX before the IEX originating customer has their own data.

Now you can see why you not only need co-lo at IEX, you need co-lo at Nasdaq & NYSE plus the appropriate RF links to trade optimally at IEX. Ugly.

Still dark and expensive


The other short update is that IEX remains, like a restaurant, dark and expensive. In March, only 19.8% of handled volume at IEX was lit volume. More volume was routed away than actually traded as lit. The "puzzle masters" seem to have out foxed themselves with their complex orders that their own customers may struggle to understand in detail. Remember, non-displayed orders cost 9 mill a side; as well as some displayed orders if you don't meet their zero - virtual rebate - criteria. Yes, dark and expensive. 

(click to enlarge)
I truly believe Brad and his team had and continue to have good intentions. The reality is just quite far from their investor friendly messaging. I don't think I'm deluded. If I'm not deluded, IEX staffers must be. Who is right?

I wouldn't like to be an investor in IEX. Fortunately IEX have cash, lots of marketing goodwill, and plenty of time to correct course, even if it would involve eating a good deal of humble pie. Ego or road kill? The clock is ticking.

Caveat emptor and happy trading,

--Matt.

1 comment:

  1. They are also pushing for a fee pilot. As altruistic as those intentions are, guess where that puts their lit quotes in terms of cost effective routing? Just saying...

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