Incumbent companies don't take kindly to upstarts threatening to change the way an industry works. Whether you're Uber or Lyft undercutting taxi companies or Airbnb pulling guests away from hotels, someone is going to be upset about having to compete with an idea that seemed to come out of left field.

The situation is no different for private "dark pool" trading venue IEX, which expects to find out March 21 whether the Securities and Exchange Commission will grant it approval to become a public stock exchange. Billing itself as the good guy stock market where high-frequency traders don't have an unfair advantage, IEX has predictably caught more than a little flak from heavyweight competitors Nasdaq, NYSE and BATS.

IEX also has some powerful supporters. Bloomberg reported Thursday that Financial Industry Regulatory Authority CEO Rick Ketchum--a key U.S. financial regulator--told an audience of lawyers and lobbyists in Washington D.C. Wednesday current regulations should be able to accommodate IEX as a public exchange. "I think what they have done is creative," Ketchum, who previously served as a division director at the SEC, said. "If I were focusing on that, I would focus less on the speed bump."

The startup trading venue automatically waits 350 microseconds to post or execute an order, and to send out notification that the order went through. The idea is that this delay or "speed bump" doesn't affect performance for slower traders like asset managers but amounts to a significant slowdown for controversial high-frequency traders accustomed to having an edge by knowing about changes in stock values the microsecond they change.

IEX CEO Brad Katsuyama can pin a number to the feedback IEX is receiving: Since the SEC opened up public comment Sept. 21 on the startup's application to become a public stock exchange, roughly 400 letters have flooded in, some praising IEX for championing the interests of everyday investors and others criticizing aspects of the speed bump as unfair. 

To put that quantity in perspective, Nasdaq received 97 letters of public comment when it was awaiting SEC approval according to Katsuyama. And all the letters about IEX are compounded by accompanying commentary online and in the media.

"I can't read everything that's written about IEX, nor do I necessarily want to" considering the vitriol the CEO says is contained in some letters. He has a straightforward approach to dealing with what would otherwise be an information overload.

"I read most of it once and then just put it away," he says. And he meditates.

By most of it, he means the stuff that makes it through the internal filters of IEX. All 67 of IEX's employees are reading content generated about company, and a group of about 12 employees forward the most important commentary to Katsuyama. Katsuyama reads letters and articles for the facts they contain to make sure IEX isn't missing anything that merits a response or that IEX should otherwise incorporate into arguments for it becoming a national securities exchange.

IEX has picked up on what Katsuyama describes as certain trends in criticism. Critics started by focusing on small details about how IEX works or arguments the company has made, then started saying regulations themselves should get a second look, he says.  "I think the posturing is kind of changing. It went from very micro to very macro."

Then there are the arguments Katsuyama and IEX marketing and communications head Gerald Lam say rely on inflammatory language. Lam cited a letter from Missouri-based public stock exchange BATS, in which the exchange referred to actions by IEX four times as "reckless."

"However, IEX has repeatedly demonstrated, through its public misstatements, its public relations campaign and its reckless misrepresentations to the SEC and the public, an inability to satisfy the basic tenets of being a national securities exchange," reads the letter, in which the general counsel for BATS says the public exchange is withdrawing support for IEX becoming a national securities exchange.

Katsuyama says IEX's response to the mixed bag of comments submitted to the SEC is to double down on its arguments.

"We've been pretty happy with the attacks," he says. "They're using the complexity of the subject to try to change the discussion."

"We know what we've said, we stand behind what we've said, and we know it to be true."

The Entrepreneur Disrupting Wall Street
Published on: Feb 18, 2016