NewsBusiness

FTX.US Makes Strategic Investment in IEX Exchange

FTX.US partners with IEX to build a venue for trading digital asset securities. It's a shot across the bow for high-frequency traders.

3 min read
FTX. Image: Shutterstock

FTX.US, the U.S. arm of Sam Bankman-Fried's cryptocurrency exchange FTX, has agreed to make a strategic investment in the group that operates the IEX Exchange. 

FTX and IEX said that the strategic partnership would include working together to build a venue for trading digital asset securities.

"What shape that takes will ultimately depend on what regulations require. The focus in the near-term is on engaging with regulators to move the industry forward as institutional investors need a regulatory structure in place before purchasing digital assets on behalf of their customers," an FTX spokesperson told Decrypt. "IEX has a history of innovating in a highly regulated space and pushing the envelope where exchange design is concerned. The IEX Speed Bump is the best example."

The speed bump consists of a 38-mile fiber optic cable that incoming trade orders to the exchange have to traverse. It's enough to delay them by 350 microseconds and stop faster traders (and their algorithms) from executing trades before prices at the exchange have been updated. 

The speed bump renders the fractions of a second advantage that high-frequency traders leverage on other exchanges null and void.

"From the first conversation with Sam, it was clear to me that FTX and IEX were truly aligned on the future potential for digital assets and the unique roles our firms could play as partners in shaping market structure that benefits the end investor," said IEX CEO and co-founder Brad Katsuyama. "We both see the regulators as important allies in providing a clear path forward and attaining the highest possible standards for investor protection."

The firms did not disclose the investment size, which is expected to be finalized next month. But the partnership with IEX does signal that as FTX proceeds in the U.S. market, it wants to keep investors on level footing with high-frequency trading firms like Tower Research and Citadel.

What is IEX Exchange?

The IEX Exchange handles a small portion of the U.S. equities market, accounting for 2-3% on an average day. It's a fraction of the trades being executed on the top two: New York Stock Exchange handles 19%, and Nasdaq sees 17%, according to the Chicago Board Options Exchange. 

But the upstart exchange was founded in 2012 to mitigate the effects of high-frequency trading, and all of the aforementioned high-frequency trading firms have indicated that they're interested in the crypto market. 

Tower Research started contributing real-time Bitcoin pricing on Pyth, a blockchain-agnostic oracle network for professional traders and exchanges, in November. It's also currently hiring a software developer to work on its crypto desk in Singapore

Citadel founder Ken Griffin—yes, the one who outbid ConstitutionDAO to buy a copy of the Constitution—has since softened his stance on crypto, telling Bloomberg that "crypto has been one of the greatest stories in finance over the course of the last 15 years."

Stay on top of crypto news, get daily updates in your inbox.