Billionaire Who Once Built Robots to Trade Goes to War With Them
(Bloomberg) -- Thomas Peterffy helped launch the electronic-trading revolution that transformed the U.S. stock market. And while the billionaire hasn’t soured on automation, he’s taking a lead role fighting back against the speediest traders.
Interactive Brokers Group Inc. announced Wednesday that it will list its shares on an exchange run by IEX Group Inc., which was made famous by Michael Lewis in “Flash Boys.” The 2014 book documented the market’s efforts to use a 350-microsecond speed bump to eliminate advantages IEX believed the fastest traders had in U.S. stocks. When shares of Interactive Brokers move over from Nasdaq Inc., it will be IEX’s first win in its delayed plan to list corporations.
“Our investors are likely to receive better executions when they trade our stock, or for that matter any other stock, on IEX,” Peterffy, Interactive Brokers’ chairman, said in an email Wednesday.
Peterffy, 73, was instrumental in getting computers to trade stocks. Three decades ago, to bypass a Nasdaq rule requiring all orders to be entered on a keyboard, his team built a robot to do it.
“On active trading days, the robot typed so fast it sounded like a machine gun,” National Public Radio reported in 2012.
Eventually, traders were allowed to plug directly into exchanges like Nasdaq’s, eliminating the need for such workarounds. The pace of trading accelerated dramatically, and some order times are now measured in nanoseconds.
Peterffy, a native of Hungary also known for buying political ads supporting Republicans, is the world’s 49th-richest person with an $18.5 billion fortune, according to the Bloomberg Billionaires Index.
He still remains a fan of computers.
“Automation is fantastic!!!!” he said in his email. “Front-running has always existed. Now at higher speeds it is less visible.”
So far, IEX has failed to make a major dent in trading, accounting for less than 3 percent of the market. And its goal to start listing companies and expand its influence in trading has been slow-going. Wynn Resorts Ltd. had been an obvious candidate to move to IEX because founder Steve Wynn invested in the exchange, but he resigned from the casino company earlier this year amid sexual harassment allegations.
Stocks trade on 13 exchanges in the U.S. and dozens of private markets known as dark pools, so Interactive Brokers won’t trade exclusively on IEX.
“All I can do is to encourage people to trade on IEX,” Peterffy said. Interactive Brokers was an early supporter of the exchange, allowing its customers to mandate that their stock trades be routed there.
The billionaire says he’s not an investor in IEX, which remains privately held, but he would consider investing via Interactive Brokers, which has a market value of about $24 billion.
The question now is whether other companies move to IEX from the New York Stock Exchange or Nasdaq, which have a duopoly on corporate listings.
Nasdaq declined to comment on Interactive Brokers’ switch.
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