The trading community is in a tizzy over a proposal by America

Brad Katsuyama, chief
executive of IEX Group
REUTERS/Eduardo
Munoz

• 
  IEX is proposing a discount to attract brokers to its
  exchange. 
  


• 
  But some market-watchers note similarities between the
  proposed discount and other exchanges' rebate programs, which
  IEX has criticized.
  

---

Upstart stock exchange IEX is proposing a model to lure brokers
to its exchange and Wall Street is in a tizzy.

IEX's so-called Enhanced
Market Making Proposal would provide
brokers a one cent per 100 share
discount on trading in certain
circumstances. 

"The IEX Enhanced Market Maker (IEMM) Program offers a discount
on trading fees to market makers when they meet stringent market
making requirements in IEX-listed stocks with only
their principal order flow (not that of their
clients)," a
blog post describing the new model said.

IEX has gone head-to-head with its rival exchanges over other
methods to attract brokers in the
past. The New York Stock Exchange
and Nasdaq pay rebates to brokers to incentivize them to
send their orders to their exchange. IEX
chief executive Brad Katsuyama once said
"rebate practices cause clear and significant harm to
investors."

But some market watchers don't see a difference between IEX's
discount proposal and its competitors' rebates. "So rebates
are bad — so what is IEX doing," Larry Tabb,
the founder and research chairman of TABB Group, a
capital markets research firm told Business Insider in an
email. 

"Offering discounts on trading fees — what is another word
for a discount — a rebate," he concluded. 

"I think their past logic is wrong and this is a perfectly
rational thing for them to do," Dave Weisberger, an IEX critic
and head of crypto and equity markets at ViableMkts, said in an
email. 

The exchange stands by its long-held view on rebates. They say
paying brokers for flow, even when it's not in the best interest
of their clients, is not the same as giving a discount to brokers
who are trading for themselves.
Here's IEX:

"The way displayed quotes are currently incentivized in the
market — rebates — has serious problems. Most obviously, they can
create a conflict around client order routing if brokers
prioritize rebates over best execution."

Richard Johnson of consultancy Greenwich Associates told
Business Insider that there is a "slight" difference between
rebates and what IEX is proposing. 

"IEX will argue that discounts are different to rebates and
others will argue it's the same thing," Johnson said.  "But
the important point is that IEX acknowledges that it is sometimes
necessary to provide incentives for liquidity discovery."

Representatives from both the New York Stock Exchange and Nasdaq
declined to comment to Business Insider. 

This post has been updated to reflect Dave Weisberger's most
up-to-date title. 

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