It's a simple technology: 38 miles of coiled cable that incoming orders and messages must traverse before arriving at the exchange’s matching engine. This physical distance results in a 350-microsecond delay, giving the exchange time to take in market data from other venues—which is not delayed—and update prices before executing trades.
The philosophy behind the Speed Bump is that no market participant should be able to have a speed advantage over the exchange itself.
In this video, Ronan Ryan and Brad Katsuyama break down the dynamics that drive the need for the Speed Bump and how this innovation helps create a level playing field where the exchange can be a fair referee for trading.
The delay imposed by the Speed Bump is essential to the high quality of executions on IEX Exchange and allows broker-dealers and investors to trade on IEX Exchange with the confidence that their orders are protected from trading at stale prices.
Additionally, the Speed Bump enhances the efficacy of the IEX Signal by giving the Exchange more time to determine if a quote is unstable before trades are executed.
Research conducted after IEX Exchange launched as a U.S. stock exchange suggests that the Speed Bump and IEX Exchange’s overall design results in improved trading quality.
Read more from SEC economist Edwin Hu, who showed that market quality improved for securities with high historical IEX market share after IEX Exchange became an exchange and price discovery improved overall.