A Flash Boys Foe Is Slowed Down in D.C.

The hero of Michael Lewis’s book wants to start a stock exchange “They should have to play by the same big-league rules”

Brad Katsuyama was lionized in Michael Lewis’s best-selling 2014 book, Flash Boys, for coming up with a way to protect ordinary stock investors from predatory high-frequency—that is, flash—traders. His trading venue, Investors’ Exchange, briefly pauses all orders to take away the edge pos-s sessed by traders with super-erfast computer networks.

Now his firm, IEX Group, isis trying to become a full-fledgedd public stock exchange. Such a designation would carry a stamp of approval from the U.S. Securities andnd Exchange Commission and boost the number of trades IEX handles. (It accounts for about 1.7 percent of daily volume for U.S. stocks.) Standing in the way: some of the same high-speed traders who were cast as the heavies in Lewis’s book.

Leading the charge is the hedge fund Citadel, whose billionaire founder Ken Griffin was furious about Lewis’s portrayal of the firm, according to two people who have spoken with him. Aligning themselves with such IEX competitorsp as the New York Stock Exchange andan Nasdaq, Citadel executives have trekked to CapCapitol Hill to lobby congressionalcon staff, and writtenwri letters critical of IEX tot the SEC, which has dedelayed its decision.

“DespiteDes IEX’s attempattempts to make trading nicer, iti is never going to be a country-coclub sport,” says R. CromwellC Coulson, chief executiveexec officer of OTC Markets Group, who has watched the babattle with keen interest. “Citadel playspla hard to win.”

IEX operates as a dark pool, a kind of private stock market that relies on brokers and traders to send it business. It employs a speed bump that shields investors’ orders from what it calls predatory traders. The information passes through IEX’s “magic shoebox,” which contains 38 miles of coiled fiber-optic cable that pauses transmissions by millionths of a second. The slight delay prevents speed traders from racing ahead and marking up prices when they see a big buyer in the market, or reducing them when they detect a seller, IEX says.

IEX’s opponents argue that delayed orders mean stale prices, putting it in conflict with a 2005 regulation that says investors should get the best available price.

“If they want to be an exchange and

Katsuyama