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Technology that drives performance

IEX Exchange innovates with a purpose: to drive trading performance for market participants.

Innovation

The Speed Bump

It's a simple technology: 38 miles of coiled cable that incoming orders and messages must traverse before arriving at the exchange’s matching engine. This physical distance results in a 350-microsecond delay, giving the exchange time to take in market data from other venues—which is not delayed—and update prices before executing trades.

The Speed Bump

The fundamental IEX innovation

The delay imposed by the Speed Bump is essential to the high quality of executions on IEX Exchange and allows broker-dealers and investors to trade on IEX Exchange with the confidence that pegged orders are protected from trading at potentially stale prices. Additionally, the Speed Bump enhances the efficacy of the Signal, providing a buffer of time to determine if a quote is unstable between when market data is received by the Exchange and when trades are executed.

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The Speed Bump

Evidence from the Research

Research conducted after IEX Exchange launched as a U.S. stock exchange suggests that the Speed Bump and IEX Exchange’s overall design results in improved trading quality.

Read more from SEC economist Edwin Hu, who showed that market quality improved for securities with high historical IEX market share after IEX Exchange became an exchange and price discovery improved overall.

“Creating that safe environment lets buyers and sellers come together without moving the stock, which keeps them coming back.”

Brad Katsuyama

CEO and Co-Founder, IEX Group, Inc.
Innovation

The Signal

The IEX Signal also known as the Crumbling Quote Indicator, or CQI, is a mathematical formula that powers some of IEX Exchange’s signature order types, including Discretionary Peg (D-Peg) and Discretionary Limit (D-Limit). The development of the Signal is based on the understanding that stock prices—the official best bids and offers in the market—don’t always change as a single event. Rather, they often occur as a sequence of updates over a sub-second timeframe, which is only complete when the final exchange’s price changes.

The Signal

How it Works

During these moments, it is sometimes possible to examine the sequential quote updates from exchanges to identify when the current price is likely about to change—similar to making a prediction that the last in a series of dominos will fall once the row has started to tumble.

Specifically, IEX Exchange considers a price as “unstable” or “crumbling” when the Signal determines that the National Best Bid (NBB) is likely about to decrease or the National Best Offer (NBO) is likely about to increase. When the determination is made, the Signal “fires” and is “on” for 2 milliseconds.*

The Signal is also enabled by the IEX Speed Bump, which gives IEX Exchange a time buffer in which to determine if a price is unstable before trades are executed.

*Signal V5 is "on" for 2 milliseconds, or until the price changes.

While IEX endeavors to utilize data and calculations that it believes to be reliable, IEX cannot ensure the timeliness, accuracy, reliability or completeness of any data or calculations, including our measure of when we determine the quote to be crumbling.

How is the Signal used?

Discretionary Peg
Discretionary Limit
Primary Peg
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IEX Exchange’s signature, patented order type. When the price is stable, D-Peg orders are willing to trade with incoming orders up to halfway between the NBB and NBO (the “Midpoint Price”). However, when the Signal indicates the price is unstable, D-Peg orders are priced at the less aggressive of one (1) Minimum Price Variant (MPV, $0.01 for most stocks) lower (higher) than the NBB (NBO) for buy (sell) orders or the order’s limit price. The Signal is also incorporated into the Corporate Discretionary Peg (C-Peg) order type, which is a variation of D-Peg designed for corporate buyback orders.

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Behaves like a regular limit order (displayed or non-displayed), except when the Signal indicates a price is unstable. This triggers D-Limit orders to automatically reprice to 1 MPV outside that level. The Signal is designed to protect D-Peg, and P-Peg, and D-Limit orders by cueing them to behave less aggressively when the price is likely about to change in their favor—the goal is for buyers to be able to buy at lower prices and sellers to be able to sell at higher prices.

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-ʱ®

When the price is stable, P-Peg orders are willing to trade with incoming orders at the NBB or NBO. However, when the Signal indicates the price is unstable, P-Peg orders are priced at the less aggressive of one MPV lower (higher) than the NBB (NBO) for buy (sell) orders or the order’s limit price.

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Boxes and Lines

Blog posts, podcast episodes, and insights from IEX Exchange.