Citadel Securities Fails to Block New Options Venue at IEX
Federal Appeals Court Rejects Citadel Securities' Challenge to IEX's New Options Exchange
A federal appeals court has cleared the way for IEX Group Inc. to launch a new type of options exchange that intentionally slows orders, after rejecting Citadel Securities' bid to block the platform. The ruling, issued by a three-judge panel on Friday, allows IEX to proceed with its plans to launch the venue later this year.
The Securities and Exchange Commission had previously approved the platform, rejecting Citadel Securities' claim that latency arbitrage - the trading tactic IEX says its delay is meant to blunt - isn't a real problem. In its decision, the court cited substantial evidence supporting the Commission's finding that latency arbitrage poses a problem in options trading and disincentivizes many market makers from providing liquidity.
The new exchange will deliberately slow options orders using a so-called speed bump, extending a mechanism IEX has used in equities to counter the advantage of high-speed traders. It will also be able to delay, cancel and reprice orders on behalf of market makers, a feature IEX says is designed to blunt latency arbitrage and reduce operational costs in the options market.
IEX had faced opposition from Citadel Securities, which had raised concerns with the SEC over its plans and later sued the regulator over its approval of the venue. However, the court's decision has paved the way for IEX to move forward with its plans.
| Exchange Operator | Number of Exchanges in US |
|---|---|
| IEX Group Inc. | 1 (new) |
| Other Operators | 18 |
The options market has seen significant growth in recent years, with a boom in contracts that expire within 24 hours. IEX's new exchange will join 18 other options exchanges in the US, including those operated by CBOE Global Markets and NASDAQ.
IEX has welcomed the court's decision and is now turning its focus toward launching the exchange. The SEC declined to comment beyond its own court filings, while Citadel Securities did not respond to requests for comment.
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Investor Takeaway
Citadel Securities' bid to block IEX's new options exchange was rejected, potentially impacting market dynamics.
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