Since the beginning, IEX Exchange has worked with our broker partners to help them achieve high-quality executions for their institutional investor customers.
We do that through our infrastructure — the Speed Bump and Signal — as well as the tools we offer in the form of our order types. As a result, we’ve built an ecosystem known for rich midpoint liquidity and a high standard of trading performance for investors.
IEX’s Retail Program was introduced in 2019 to bring that high-performance dynamic to a different subset of the trading ecosystem: the retail community. Since then, we’ve scrutinized the performance of the program and asked participants what worked and what didn’t. The feedback we received encouraged us to propose enhancements that are designed to give retail investors and the brokers who serve them more opportunity to receive midpoint price improvement on IEX Exchange.
The Retail Ecosystem
For years now, retail trading volume has been largely separated from the rest of the market ecosystem, trading mostly off-exchange. Retail brokers, as well as the traditional buyside and sellside, told us that they would like for there to be another option that could bring some of that “inaccessible liquidity” back to the public markets.
We designed our program to provide that option — a place for retail to trade on an exchange and at the midpoint — equal to an effective spread (EQ) of 0. We do this by incentivizing midpoint liquidity specifically for retail and underpinning the trading experience with the same performance-focused tools and infrastructure for which IEX is known.
An Evolving Environment, An Evolving Solution
With increased focus on retail trading across the industry and broader public, we believe there is now an opportunity to bring the benefits of our Retail Program to more participants. The increased scrutiny on retail trading means that there is a redoubled focus on execution quality — always a good thing! — and perhaps openness to try new options.
Of course, IEX’s program does not operate in a vacuum. Since its original launch, we’ve been learning what works and what doesn’t for Members representing retail orders and those who want to interact with those orders. The adjustments we’re proposing are designed to enhance the whole ecosystem by (1) attracting more liquidity to the program by giving retail liquidity providers (RLPs) more opportunity to trade and (2) narrowing the definition of who qualifies as a Retail Member Organization (RMO) to more accurately serve genuine individual traders.
First, we’re proposing four changes that affect RLPs. Any firm willing to trade with retail orders at the midpoint on IEX can submit RLP orders/can act as an RLP. The changes include:
- RLP orders (an order type that only executes against retail orders) will now have priority over other non-displayed orders at the midpoint when there is a retail counterparty.
- RLP orders will now be Midpoint Pegs (M-Pegs), rather than D-Peg orders. That means that they will trade at the midpoint even if the Signal is on.
- A Retail Liquidity Indicator (RLI) will be disseminated to the SIP, TOPS and DEEP data feeds to let retail brokers know when there is at least a “round-lot” of RLP order interest on IEX Exchange that offers at least 10 mils of price improvement from the best bid/offer (a midpoint trade in a 1 cent-spread stock provides 50 mils of PI). The RLI will include the symbol and side.
- RLPs will no longer be able to indicate a minimum quantity for their order. This means that an RLP order cannot indicate that a trade must be at or above a given size.
Second, we are proposing narrowing the definition of a Retail order to increase the confidence that retail order flow is limited to non-professional investors. Under the updated rule, an RMO (i.e., an IEX Member or division thereof that has been approved by the Exchange to submit Retail orders) must have policies and procedures in place to ensure that Retail orders are appropriately represented on IEX. Specifically, these policies and procedures must be reasonably designed to assure that Retail orders it sends to IEX:
- represent the trading interest of a retail investor, including that the order does not originate from a trading algorithm or any other computerized methodology (part of the original program)
- originate from retail investors that do not place more than 390 equity orders per day on average during a calendar month (a new part of the eligibility requirement)
To be clear, the functionality of the Retail order type is not changing. Retail orders can still execute at the midpoint against any midpoint-eligible orders on IEX Exchange (or against displayed odd lots priced more aggressive than the midpoint), and Retail and RLP orders will continue to execute for free.
We look forward to continuing to work with the retail community to find ways to set a new standard for retail trading moving forward. As always, please reach out to me or your IEX contact with any questions or to discuss participating in our Retail Program.
 Pending SEC approval and effectiveness of SR-IEX-2021–06.
 Please refer to above rule filing for additional detail regarding RMO obligations.
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