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Nasdaq has raised the threat of a legal challenge to IEX Group’s plan to convert into a stock exchange. The main argument against IEX is its use of a "speed bump" that is designed to slow incoming orders by 350 microseconds, on its market to prevent high-frequency traders from having what it argues is an advantage over other parties.
Amir Tayrani, an attorney acting for Nasdaq at Gibson Dunn & Crutcher LLP, wrote in a letter to the SEC dated Thursday, 19 May, “Moreover, in light of Regulation NMS’s prohibition on intentional response time delays, the Commission lacks the authority to approve IEX’s pending application and to treat IEX’s intentionally delayed quotations as protected.”
The letter from Gibson, Dunn & Crutcher to SEC Secretary Brent J. Fields contains a stark warning: “In addition, the proposed Interpretation would be unlikely to survive judicial scrutiny because this de facto rewriting of Rule 600(b)(3) would impermissibly circumvent the Commission’s statutory obligation to consider whether changes to Regulation NMS are justified on the basis of cost-benefit considerations."
The letter concluded: “For all of these reasons, Nasdaq urges the Commission not to depart from its existing interpretation of Regulation NMS by authorizing artificially delayed response times for protected quotations, and further submits that the Commission lacks the authority to approve IEX’s application and to treat its intentionally delayed quotations as protected.”
Nasdaq is not alone with this criticism. New York Stock Exchange and Citadel have also voiced their opposition.
