In his recent best seller "Flash Boys" (#1 of the NYT best seller list), Michael Lewis tells the fascinating story of an unlikely hero, Brad Katsuyama from RBC. Upon realizing that "the stock market is rigged" -- he was a trader being front-run by high-frequency trading systems -- Brad and his team decide to create a different kind of exchange. One that is simpler, and fairer. An exchange where sellers and buyers meet on a level-playing field without faster predatory HFTs front-running all orders, and injecting themselves as (uninvited) intermediaries.
Having just read the book, I have to say it is very compelling. Yet I feel it leaves many questions unanswered.
As far as I understand, all of the big brokerages already have similar computerized market-making systems in place, which are called "dark pools" (interestingly in a mostly negative connotation) because they aggregate and facilitate trades within the pool without exposing them to main exchanges.
Edit: turns out this is wrong: many (most?) dark pools sell their "Order Flow" in real-time to external firms, especially HFTs which seems like a conflict of interest
The brain-child of Katsuyama is in some ways an inside-out "dark pool" where among other things, all trades are slowed down artificially (by 330 microseconds) in order to blunt the speed advantage of HFTs.
Detractors (mostly from the HFT industry) claim that Katsuyama is talking his book and IEX is standing to benefit greatly from this new model. Interestingly Goldman Sachs is an investor in IEX, and (currently) its biggest client too.
So is IEX really something different that can benefit the small investor? If so how? In what ways does it change an industry that is built on so many perverse incentives where the big guys always win and the small guys always lose?
Edit: Did IEX commit to never sell their order flow in real-time for profit? This is one of the critical prerequisites for fairness.
Please be specific in your responses. Thanks so much.