Today the Securities and Exchange Commission (SEC) voted to make Investor’s Exchange (IEX) the 13th public stock exchange in the US. You might think this decision will lead to more creative new exchanges starting up—but in fact it may signal just the opposite.
In a conversation prior to the SEC’s decision, IEX CEO Brad Katsuyama told Quartz he believes that the number of stock exchanges in the US will actually shrink in the years ahead. “There’s a lot of exchanges, which has fragmented the market, but there is virtually no differentiation among them,” he said.
He went on to argue that each new exchange created over the last decade was little more than an opportunity to charge traders for speed-related services: data feeds, bandwidth, etc. By providing a route around abusive high-frequency traders, IEX undermines the exchanges’ ability to coerce traders into paying for access to additional markets. “Once the burden of carrying these exchanges outweighs what you can charge people multiple times for a product that isn’t different…then the economics of having multiple exchanges starts to change,” he said.
Of course, this presumes the SEC decision isn’t undercut by future concessions, gutted by lobbyists, or supplanted by some other regulation. But at least for the moment, there are serious questions about the business models of the incumbent exchanges.