Why NYSE Opted For A Speed Bump, And How It Could Help

+2.03%
Upside
137
Market
140
Trefis
ICE: Intercontinental Exchange logo
ICE
Intercontinental Exchange

Less than a year ago, IEX received SEC approval as a national stock exchange, giving the startup a license to challenge traditional exchanges such as IntercontinentalExchange (NYSE:ICE), NASDAQ (NASDAQ:NDAQ) and BATS. The approval was opposed by traditional exchanges as IEX  used a “speed bump” that slows orders by 350 microseconds, which would eliminate advantages for high-frequency traders (HFTs). IEX continued to gain market share over the months and reached over 2% market share recently as more and more investors were attracted to the exchange. On the other hand, NASDAQ and NYSE (owned by ICE) saw market share pressure during the same period. The success of IEX likely led NYSE to change its stance and apply for the introduction of a speed bump on its small and mid-cap exchange NYSE MKT earlier in the year, and received approval  in May.

What Made NYSE Introduce The Speed Bump?

  • The exchange operator has been losing market share in the cash equity space, from around 25.9% in June 2016 to around 22.9% in May 2017. Around the same time, IEX managed to almost double its market share from around 1.1% to 2.3%.
  • NYSE will apply the speed bump on NYSE MKT, which lists around 370 small and mid cap companies and has market share of around 0.2%. This should allow the company to roll it out on a relatively low-profile basis, in order to test the viability of the speed bump. After studying the impact of the mechanism, the company could decide to roll it out on a larger scale.
  • NYSE MKT is generally comprised of small and medium cap companies, and therefore likely less liquidity. The move to eliminate any undue advantages to large investors could attract smaller investors to the exchange.
  • Being the first among the traditional exchanges to introduce a speed bump, the company could have an early mover advantage if the exchange manages to attract a significant number of investors to its platform during the testing stage. Further, the introduction of the speed bump eliminates much of IEX’s competitive advantage, which should allow NYSE to ultimately protect its market share going forward.

See the full Trefis analysis for Intercontinental Exchange.

Relevant Articles
  1. Up 24% Since The Start Of 2023, What To Expect From Intercontinental Exchange Stock After Q4 Results?
  2. Up 7% In The Last One Month, Where Is Intercontinental Exchange Stock Headed?
  3. Where Is Intercontinental Exchange Stock Headed?
  4. Intercontinental Exchange Stock Is Trading Below Its Fair Value
  5. Intercontinental Exchange Stock To Edge Past the Expectations In Q4
  6. Forecast Of The Day: Intercontinental Exchange Data Services Revenue

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research