In particular, large block buyers, who previously got to take advantage of inefficient price discovery to get better prices have been negatively impacted. It is in their best interests to make it possible to buy a very large amount of traded products without the price changing.
IEX is built from the ground up for those market participants and none of them have any misunderstanding about how the market works. They just don't like it.
Edit: http://blogs.wsj.com/moneybeat/2014/08/11/debate-over-high-f... Seems like there is some debate. IEX claims 17.7% which is still higher than I expected.
So the 17.7% of HFT counterparties squares roughly with 30%+ HFT trades.
http://www.amazon.com/Introduction-High-Frequency-Finance-Ra...
If a participant places a large buy order into the IEX, this is going to affect the price of that asset, both at the IEX (obviously) and anywhere else it is listed, along with any correlated assets.
Now, the original participant will have bought its shares at the price it wanted at the IEX and be happy about it. However, market makers at other exchanges will not be aware of this upward price shock just yet. They will be blindly quoting sell offers at a price that had just been bought in bulk at the IEX. Whoever can receive the information out of the IEX 'magic shoebox' first and shoot that information over to the other exchanges will be able to make a profit. You can see that it doesn't matter how long the IEX delay is.
The original buyer will be the first to know of course, but they are unlikely to want to take on the risk of all available shares at that price at all exchanges. Thus, there will likely be some left for HFT to take.
(1) A person decides to cross the spread on IEX first -- in this case, their order will be delayed by 350us (or whatever the shoebox delays), and no one in the world sees the result of their trade until the public data feed updates, in which case all participants are reacting off the same feed, same as any other US equity exchange.
(2) A person hits another exchange first, in which case HFT races to cancel their orders on IEX or cross the spread against another firm's orders on IEX -- yes, their action is delayed by 350us, but so is every other person, so you're otherwise racing to get into the message queue at IEX, and the artificial shoebox delay is irrelevant, since all market participants are equally delayed by it.
So while IEX's shoebox delays the latency on the result of an action, it doesn't make an appreciable difference in the typical HFT strategy. The primary difference is in (1), there is a higher chance that an unsophisticated large block trader (because a sophisticated one will have already set up the necessary delays to hit all exchanges simultaneously) will be able to hit market makers on both IEX and other exchanges before anyone has the time to react, thus being able to take large advantage of their own proprietary knowledge (their own order) some percentage of times more often. The only thing this results in a decrease in liquidity on IEX, but seeing as they're a dark pool/minor player anyways, the difference is negligible.
If this is not true, I don't see why anyone would care about IEX at all, and why they would trade on it.
they offer lower fees than other exchanges - standard practice to steal away business from competitors. Traders will trade anywhere where there is liquidity.
Perhaps employees of IEX drink the koolaid because the exchange actively seeks to eliminate architectural areas of unfairness. The only thing publicized is the 'magic shoebox', but perhaps there are many more such features. Again, this is just conjecture.
By making it a moral issue, IEX can attempt to trick suckers into joining the market so that the large block traders can take advantage of them.
Watch this video (put out by IEX) and think about how it's trying to manipulate people: https://www.youtube.com/watch?v=v2OZkTesSx0
Why would large block traders like to trade with someone pinging the market for 100 buy/sell orders, waiting for discovery, and then changing the price on other markets from information gained from these pings? If the market were rid of these pings, as the 350ms delay is intended to do?
Or to put the same question another way, why would a large block trader not like all trades being done at the same price or at a better or equal price on other exchanges (discovered by IEX) rather than some of the block done at the original price and the rest done at a higher price because 'liquidity' was provided by HFTs driving up/down prices on other markets and then selling/buying from the large block trader this 'liquidity'.
"In particular, large block buyers, who previously got to take advantage of inefficient price discovery to get better prices have been negatively impacted. It is in their best interests to make it possible to buy a very large amount of traded products without the price changing."
There are people who work at IEX who do not "drink the Kool Aid" and have been critical in private industry discussions about Katsuyama's statements.
Additionally, IEX actively solicits trading in their pool from HFT firms. For one, these same people understand that it is difficult to match the quality of other modern US equity markets without those participants. Moreover, it's hard to build appreciable market share (% of marketwide volume traded) without electronic trading, which is how their business makes money and grows in valuation.
http://www.amazon.com/Flash-Boys-Insiders-Perspective-High-F...