Electronic trading giant Citadel Securities sued the Securities and Exchange Commission on Friday over the agency’s decision to approve a new stock trading mechanism at upstart exchange operator IEX Group Inc.
The lawsuit marks an escalation by Citadel Securities in an obscure litigation over the order type IEXs D-Limit, which is designed to give traders a way to buy or sell stocks on the stock exchange while protecting them from moves. unfavorable prices.
Citadel Securities previously urged the SEC to reject the IEX’s proposal, arguing that D-Limit would undermine the integrity of the U.S. stock market and create unfair discrimination against certain investors. But the SEC sided with IEX in August and allowed the plan to move forward.
The SEC failed to properly account for the costs and burdens imposed by this proposal which will undermine the reliability of our markets and harm tens of millions of retail investors, a Citadel spokeswoman said. Securities in a press release.
In a brief court filing dated Friday and seen by the Wall Street Journal, Citadel Securities asked the District of Columbia Circuit Court of Appeals for a review of the SEC’s decision to approve the D-Limit order.
An SEC spokeswoman declined to comment.
Since its launch on October 1, D-Limit is already proving valuable to a wide range of market players and the SEC’s decision to approve it is based on overwhelming evidence, said the co-founder and chairman of IEX, Ronan Ryan, in a statement.
We are convinced that it will be maintained, he added. From our perspective, this recent action should only encourage more investors, brokers and market makers to use D-Limit as the protections we have created are clearly working.
IEX is best known for being featured in Michael Lewiss’ 2014 book Flash Boys: A Wall Street Revolt, which calls its founders crusaders against predatory lightning-fast traders.
IEX called D-Limit an innovative way to help protect brokers and trading firms from latency arbitrage, a strategy in which high-speed traders detect that a stock’s price is on the verge to move, then buy or sell it in the blink of an eye, before other market participants have time to adjust their orders.
The proposal has garnered the support of a number of institutional investors, including Allianz Global Investors, the New York State Common Retirement Fund and the Vanguard Group.
Like standard limit orders offered by other exchanges, D-Limit orders on IEX allow traders to publicly display the highest price they are willing to pay for a stock, or the lowest price. to which they are willing to sell. But unlike standard limit orders, D-Limit orders contain a built-in function where IEX automatically adjusts the price of the order if the exchange detects that the stock price is about to move in an unfavorable direction. trader.
Citadel Securities and other opponents have said D-Limit will unfairly discriminate against companies that might try to buy and sell shares of traders using the new order type. They also said that D-Limit commands could potentially raise doubts as to whether the quotes posted on IEX were genuine or illusory.
Write to Alexander Osipovich at [email protected]
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Appeared in the print edition of October 17, 2020 under the title “Citadel Escalates Dispute With SEC”.
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