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Language: en

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- A modern stock exchange isn't
people yelling at each other

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to buy and sell things.

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It's a matching engine,

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a computer system that
takes in all the information

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of who wants to sell, who wants to buy,
and what prices they want,

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and then pairs them all up,

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and exchanges money and shares
automatically as fast as it can.

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Over the last couple of decades, though,

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something called
high-frequency trading appeared:

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computers trading on a stock exchange
faster than any human ever could,

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watching for price fluctuations

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and reacting instantly
before anyone else can.

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The faster they react, the
more money they can make,

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so companies collectively spent billions

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on moving their equipment closer to
or even inside the exchange,

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or building private
microwave and cable links

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that send signals faster than anyone else.

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One of the strategies

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was to see someone else
send a trade request

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and then get the same offer
to the exchange faster,

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buy the shares first,

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and then sell them on
for a tiny, tiny profit

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thousands and thousands
and thousands of times.

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Each microsecond advantage
could mean more profits.

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These days, though, so many companies
have spent so much money

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to get those tiny speed gains

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that they're all trapped in a stalemate.

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They're all as close to the
exchanges as they can be,

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and the signal routes are
as close to light speed

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as they can possibly make them.

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When everyone's bought the
same expensive advantage,

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no one's in the lead.

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There is another solution, though,

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and it's being used by
another stock exchange

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a couple of blocks that way.

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- IEX is now a fully-fledged
stock exchange,

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so a lot of people obviously know names like
New York Stock Exchange and NASDAQ.

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We're regulated and established the
exact same way as those stock exchanges.

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We're one of 13 in the US.

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Sometimes, people will take the argument
of 'high-frequency trading is bad'.

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What we'll tell you is, there's nothing
wrong with those strategies,

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but different than any
other stock exchange,

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what we've done is we level the
playing field for not only those folk,

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but also for the slow traders,
the human traders,

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and the only way in which
you can really do that

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is actually, as an exchange,
to slow things down.

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Generally, in the US,

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you're obligated to know
what's going on in all markets,

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so the only way in
which you can do that is

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you have to connect to
all the other markets,

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you have to take in all
these super-fast feeds,

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and you have to make a determination
on the best price at that time.

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If someone can take in that information

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quicker than the exchange
they're trading on,

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then they can pick off people
trading on that exchange

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before the exchange even
knows what the new price is.

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We can take in all that data,

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we can make a determination
on what the fairest price is,

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and as long as someone is not
350 microseconds faster than us,

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we will always have the clearest snapshot
on what the true price is in the market,

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which is key.

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The biggest proponent of delay
is something called propagation delay.

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Just means the further away
you are from the signal,

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the longer it takes you to get it,

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so we said, why don't
we introduce distance?

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350 microseconds is 61 kilometres.

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We called up a fiber-optic provider,
and we asked them to coil cable for us,

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and we had them fabricate this box.

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This is actually 38 miles of cable.

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It looks like three big fishing spools,

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so anyone who wants to
trade on our exchange

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has to come in and traverse this distance.

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The high-frequency guys can be fast,

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and that's totally fine
with them being fast,

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but because physics is physics,

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they'll never be 350 microseconds
faster than us,

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so we can always ensure that we give
our clients the fairest price.

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The filing to become a
stock exchange for IEX

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was the most controversial filing
of any stock exchange ever.

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All the negative comments were around

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'you can't possibly introduce
a speed bump into the market'.

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'It's going to cause a
calamity in the markets.'

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'Everything's going to explode.'

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But in any case, we did get approved.

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I always found it funny, like in a market

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that has billions of dollars
of technology invested into it,

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the most talked-about thing
is IEX's exchange filing

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and a piece of equipment worth $27,000,

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but this $27,000 literally has
billions and billions of dollars

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notionally trade through it every day,

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and trade at the fair price.

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So, it was worth the battle.
We did get approval,

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and the SEC two years later
put out a white paper

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saying not only did the calamity
not occur in the market,

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the market overall, not just IEX,

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has been more stable since
IEX became a stock exchange.

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- Sure, you could do this by
having a computer receive every signal,

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wait for however long you want,
and then send it on.

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It would probably be cheaper.

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High-grade fiber-optic cable
is expensive stuff,

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but that would be another system

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that could crash, or fail,
or be defeated somehow.

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It's unnecessarily complicated.

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There's a lot to be said for a solution
that just uses physics.