‘Flash Boys’ Exchange IEX Preps Options Place as Market Booms

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(Bloomberg) – IEX Group Inc. is preparing to open an options exchange, the latest company to capitalize on the boom in derivatives trading in the US.

Equity exchange operators will enter the options market next year, pending regulatory approval, according to President Bryan Harkins. It will be an electronic-only venue that provides access to the entire options market.

“The toolset that IEX has delivered in equities has many applications to help address some of these challenges for market participants in options,” Harkins said in an interview.

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A new place has emerged amid rising volumes. Trading in the US options market has broken records, as many contracts linked to the S&P 500 Index expired within 24 hours. A record 73 million put and call contracts traded on the US exchange on August 2, data compiled by Bloomberg shows, although the volume stalled in the next few weeks amid the summer lull.

Helping to lead the IEX effort is John Palmer, who is the head of selection and responsibility for the new exchange. He reports to Harkins, who oversees the IEX equity exchange and new ventures. The company also hired Ivan Brown, former head of options and business development at the New York Stock Exchange, to lead business development and product design for the new exchange.

IEX joins rivals including Miami International Holdings Inc., which launched a new brokerage last month that is part electronic, physical trading floor based in Miami. Last year, Members Exchange, or MEMX, started offering trading options on electronic boards.

Pending approval from the Securities and Exchange Commission, IEX will become the 19th options exchange operating in the U.S., Harkins said. The company was built using the same underlying technology as an equity exchange, he said.

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“We understand there are a lot of exchange options out there,” Harkins said. “This is a competitive market. But our solution, unlike other new exchange participants, will be unique. No other exchange has the product we have.”

IEX started as a stock exchange in 2016 and became popular through Flash Boys, Michael Lewis’ 2014 book about high-frequency trading. The company is a champion for market integrity and fairness in pricing. Co-founders Brad Katsuyama and Ronan Ryan met while working at Royal Bank of Canada in the electronic trading team.

Most recently, the business has grown with key senior hires including Harkins, who is a leader at Cboe Global Markets Inc., where he oversees equities, derivatives and foreign exchange trading as well as subsidiary Bids Trading. Palmer was added later, as well as an executive from Cboe who heads the digital business.

Exchange trading is a competitive business, long dominated by the NYSE and Nasdaq Inc. in equities and Cboe in options trading. IEX represented about 2.7% of the average daily US equity trading volume in September, up from 1% to 2% in the previous month.

—With help from Elena Popina.

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