By Bill Alpert

The U.S. Securities and Exchange Commission approved a new exchange for trading options that could protect market makers from computerized trading firms that take advantage of old quotes. It could appear by March 2026, says its operator IEX Group.

The IEX options exchange will bring to the options market the same "speed bump" entrance ramp that IEX uses in its stock exchange to slow all incoming orders by 350 millionths of a second.

The speed bump protects the exchange's market makers from the deep-pocketed computerized trading firms who pick off quotes that have fallen behind a fast-changing market. The new options exchange will be able to automatically reprice or cancel a market maker's quotes during the speed bump delay.

In seeking approval, IEX said that the predations of high speed "latency arbitragers" has worsened the prices available to options traders and dried up liquidity, as market makers leave the business or consolidate.

Latency arbitrate is a bigger problem for market makers in options than it is in the stock market. There are over 1.5 million equity options, because any one stock may have hundreds of options at different strike prices and expirations. So when prices are moving on the underlying stocks, market makers must race to reprice thousands of options.

"IEX Options is purpose-built to help enable liquidity providers to better protect themselves against adverse selection," says the IEX options website.

Still, IEX estimated that its quote repricing mechanism will trigger less than 0.01% of a trading day on stock options, and 0.2% of the day on the most-active options -- those of the SPDR S&P 500 ETF Trust.

The Thursday evening approval by the SEC agreed that an IEX exchange with a speed bump and quote repricing mechanisms will be attractive to options market makers who will bring liquidity, and narrower spreads between their quotes to buy and sell.

Wall Street debated the tech-fortified exchange all year. IEX drew supportive comments from small market makers, individual traders and money managers like T. Rowe Price Group and Janus Henderson Group. Against it were other exchange operators, the Securities Industry and Financial Markets Association, the broker Charles Schwab, and the two biggest options market makers: Citadel Securities (a firm launched by billionaire Ken Griffin), and the Dutch-headquartered IMC Financial Markets.

As the country's biggest market maker in stocks and options, Citadel Securities has invested heavily in computers, data feeds and high-speed connections for the benefit of its clients and Citadel's owners. It has opposed delay and repricing initiatives by trading venues like IEX -- saying that they turn market makers' quotes into unreliable phantoms.

And if the new options exchange prospers, Citadel worried that other exchanges may follow IEX with delay mechanisms of their own.

"IEX's quote-canceling scheme undermines the integrity of our markets, stealing money from millions of investors while IEX and a handful of market makers benefit at their expense," said a Citadel Securities spokesperson in a statement.

The SEC rejected arguments like Citadel's when it approved the speed-bumped stock exchange that IEX operates. Reviewing challenges, a federal appellate court agreed with the SEC.

In backing the IEX exchange, the SEC agreed with traders who believe that the advantage gained by those who invest in speed is unfair competition. Nanosecond speed races bring no public benefit, the SEC suggests, so negating some firms' speed advantages is worthwhile if it leads to more options liquidity and better pricing.

After the IEX options exchange gets up and running, investors will see if those benefits to the market appear.

IEX and any imitators may need to win a good share of the options market for that to happen. After 10 years in business, the IEX stock exchange only handles 3% of market trading volume.

Write to Bill Alpert at william.alpert@barrons.com

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September 19, 2025 14:30 ET (18:30 GMT)

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