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Blazing the Trail to Better Markets

Traders Magazine Online News, November 13, 2018

Paul Bauccio

Interactive Brokers (IBKR) was IEXís first listing, but not for me personally.

Before joining IEX in 2015 I was responsible for Trading Floor Operations at the NYSE where I oversaw IPOs and listing transfers. The rare opportunity to launch not just a new national securities exchange, but also a listings exchange, drew me to IEX. It was a unique honor for me to be part of a team beginning to challenge an entrenched decades-old duopoly by executing our first listingÖthese types of opportunities donít come around often.

It was especially rewarding because it was a chance to see our ideas about better market structure play out in practice. It was an opportunity to design technology and functionality that aligns the interests of corporate issuers, industry participants, and investors. Iím incredibly proud of the results.

You can imagine that it took a tremendous amount of planning, collaboration and hard work to launch a new listings exchange. Beyond the IEX team, several of our Member Firms supported IEX by joining our Market Making program, dedicating testing resources for our Saturday and weekday production tests, and also provided valuable feedback during our auction design process.

Letís be clear, it has only been a couple of weeks and we continue to analyze the stockís trading performance, but so far we are very excited and optimistic about what weíve observed in IBKR:

∑ Healthy balance between long-term and short-term participants as IEXís market share in IBKR has grown to 30%

∑ Larger, more stable quotes, the opposite of what you typically see during volatile markets

∑ Better execution quality for IBKR shareholders trading on IEX, because more midpoint trading is protected by IEX technology

A Market for All

IEXís balance of industry participants has always differentiated us from other exchanges: long-term investors trust us because of our technology, but we also attract the right type of short-term trading. As IEXís market share in IBKR has grown, we were pleased to see that the diverse mix of participants in IBKR held firm: more than two-thirds of our volume has come from full-service, agency-only and retail brokers representing natural investors while one-third is proprietary trading firms. This is nearly the inverse of what happens on other markets?ó?so we believe that itís a better and more stable mix of participants trading on different time scales.[1]

Specifically, we see nearly 90% of participation in opening and closing auctions is from agency and full-service broker dealers, with the balance coming from proprietary trading firms who are helping to offset auction imbalances and discover the most efficient clearing price?ó?which is reflective of a healthy ecosystem.

More Size and Stability in IBKRís Quote

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