Tuesday, 9 May 2017

IEX's dark fader = bad vibes

I've noted a few times that I'm not so sure that IEX's dark and expensive activity promotes healthy markets. Dark and expensive should be left to restaurants.

Here is how IEX's lit handling looks versus their market share since November:

It's not the best look in relative terms as we get a glimpse of a sad parasitic potential future if IEX grows its market share. Not a good look for a public exchange.

Jack Bogle surmised just this week that he thought the parasitic limit of index funds may be at least 75% of the market. IEX is already worse than Bogle's standard with less than 20% lit.

Bogle's point of view is not too different to my own simple point raised in January 2013 regarding dark algos. That is, parasitic is OK until it overwhelms the host. I don't believe dark activity is something the SEC should promote at public exchanges.

Perhaps IEX's Dark Fader would be friendlier if it was rebranded the "my little pony" exchange. How could you get upset with that? It's all about the marketing it seems. Dark Fader fits better though.

Public, fair, and open price discovery has got to be worth something.

In absolute terms, IEX remains dark and expensive. The April lit volume as a percentage of total shares handled fell to 18.7% from March's 19.8%. May has started lower with May 1 being only 15.6% which corresponded to IEX setting a new record market share of 2.603%.

This particular speed bump is not looking so good. Unfortunately, Dark Fader's force is strong in this one. Jedi wanted.



Happy trading,

--Matt.



"It's the vibe" - The Castle

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