Boxes and Lines
Blog posts, podcast episodes, and insights from IEX Exchange.
“As an exchange, as a referee in the market, you should be faster than your fastest participant.”
Ronan Ryan
President and Co-Founder, IEX Exchange
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.
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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.
“Why would you buy stock at $10 when less than 2 milliseconds later you could buy it at $9.99? You wouldn’t. Who would do that?”
Ronan Ryan
President and Co-Founder, IEX Exchange
*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.
Discretionary Peg
Discretionary Limit
Primary Peg
D-Peg®
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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D-Limit®
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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P-Peg®
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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