Score One for the Good Guys

Looks like IEX will soon be approved to become a stock exchange. If you’ve read Michael Lewis’ Flash Boys, you’ll understand why this is such a big deal.

For what it’s worth, here is the letter I submitted to the SEC back in January to support their approval:

Subject: File No. 10-222
From: Cale Smith
Affiliation: Managing Partner, Islamorada Investment Management

January 23, 2016

I am submitting this letter to strongly support approval of the IEX Exchange application.

It appears there is already a long list of reasonable facts that support approval of an IEX exchange.

I felt compelled to write, however, because reasonable facts may not be the most important factor in this decision.

I believe it is much more a question of morality.

It troubles me that, as a fiduciary, I am unable to adequately protect my investors’ interests from the nefarious effects of high frequency trading. Ours are “retail” investors – friends, small business owners, community leaders and working families – and, in short, they unequivocally deserve better from a system upon which rides so much for them.

As a veteran, predatory high frequency trading also troubles me deeply. If the U.S. had an external enemy – hackers in some rogue nation-state, for instance – that had wormed their way directly into the heart of U.S. markets in order to covertly detect future order flow and profit from it at massive scale – and at the expense of tens of millions of U.S. taxpayers – then we citizens would be apoplectic.

But we have nonetheless excused this sort of predatory behavior to date because, well – it is a complex subject, susceptible to easy spin – and, at least among the retail investors my firm serves, it is now widely believed that there is something hard-to-define but inherently wrong with markets today, in any case.

I believe approving the IEX exchange is vitally important to reinforce the idea that the integrity of the U.S. stock market will never be at question.

Approving that application will not settle anything permanently, nor should it. An IEX exchange will still have to prove its worth, every day, against fierce competitors.

But if IEX is denied the right to even attempt to fix something so fundamental to this country and yet so broken, it diminishes all of us in the market – from the SEC to big hedge funds to little independent RIAs like our firm.

This is America. Of course IEX should get a shot.

Please let them fight.




Cale Smith

About Cale Smith

Portfolio Manager at Islamorada Investment Management.
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