The head of the company that owns the New York Stock Exchange wants vastly simpler markets, starting with his own.
In a Senate Banking Committee hearing Tuesday, Jeffrey Sprecher, the founder of ICE, which started as an Atlanta energy futures exchange in 2000 and bought the New York Stock Exchange in November of 2013, said that he was "uncomfortable" with the number of order types at the NYSE and has begun "unilaterally eliminating" some of them.
Order types are a set of instructions for how buying and selling shares on an exchange should be carried out. For example, a "limit order" is an order to sell or buy a stock at a particular price or better; a "market order" is an order to buy at the best available price. Some critics of high-frequency trading say that the proliferation of order types available on exchanges like the NYSE and NASDAQ are an accommodation to high frequency traders and enable abusive trading strategies. "The problem is that we have decisions on where orders go that are not made by humans, they're made by computers," Sprecher said.
One trading venue that drastically reduces the number of available order types is IEX, the dark pool featured in Michael Lewis's Flash Boys. IEX, started by former Royal Bank of Canada equities trader Brad Katsuyama, is funded by large institutional investors and uses a physical buffer to eliminate some high frequency traders's advantages. The alternative trading venue, which opened in October, only has four order types.
"I very much appreciate the IEX exchange, they have four order types" Sprecher said. "I would love to get to four order types. They also have less than 1% market share."
According to data provided by IEX, it had .64% market share of U.S. equity trading in June. Data released by FINRA, the financial industry self-regulator, showed that IEX was the ninth most active alternative trading system or "dark pool" — stock trading venues typically run by brokerages that don't have to publicly post order prices — for the week of June 16 and the largest not run by a large bank.
"I can't take the New York Stock Exchange to 1%," Sprecher said.
Katsuyama told BuzzFeed in April after being asked if he would be open to selling IEX to ICE that, "I have a ton of respect for Sprecher... our philosophies are aligned."
In May, Sprecher said on a conference call with analysts that he would ask the Securities and Exchange Commission to limit the number of order types in equities markets. "Too many of these order types were developed in an attempt to replicate dark pool trading or to segment the market to try to attract one type of investor over another type," Sprecher said.
"I am trying to balance cleaning my own house — I live in a glass house — before criticizing others at the same time," Sprecher said in front of the Senate.
Sprecher also said that exchange operators coming together to limit order types, the SEC ordering it, or Congress passing a law would all work. "Any way to reduce them, I'd be happy," Sprecher said.
"I appreciate you allowing me to talk about this publicly to you all and to the camera and microphone because I need to put pressure on all my colleagues to follow my lead."
Matthew Zeitlin is a business reporter for BuzzFeed News and is based in New York. Zeitlin reports on Wall Street and big banks.
Contact Matthew Zeitlin at firstname.lastname@example.org.
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