The Flash Boys may have a Flash Crash coming.
The national heroes of mom-and-pop investors everywhere — as well as the subjects of an American runaway best-seller — have run into big trouble.
They are facing public humiliation stemming from “Flash Boys” hero Brad Katsuyama’s upstart IEX Group, with its grandiose plan to be a groundbreaking stock exchange to combat predatory high-frequency trading, The Post has learned exclusively.
“Demonizing high-frequency trading (HFT) worked well for a book tour, but if ‘IEX: The Exchange’ is the sequel, it’s a lot different story,” Bill Harts, chief executive of Modern Markets Initiative, the advocacy group for HFT, told The Post.
“Now you need to back up the bogeyman story with facts,” he added. “The fact is that HFT loves IEX — it’s one of the main markets that HFT firms trade on — so you have to question what IEX actually protects investors from, if anything.”
IEX, operator of a famous dark pool immortalized in the spring 2014 publication of Michael Lewis’ “Flash Boys,” is accused by industry critics of double standards and rank hypocrisy.
And even IEX’s pricing of $0.009 per trade is much more expensive than exchanges, says Aite Group analyst Spencer Mindlin. Regulators, generally seen as advocates for the small investor, are said to be so skeptical of IEX’s current stock exchange blueprint it may force IEX to scuttle its ambitious operation or else shelve key parts.
The biggest bone of contention: IEX wants to slow down trading from broker dealers — except for IEX’s own electronic router, excluding it from the proposed 320-microsecond delay implemented for everyone else. That proposal has potential competitors and angry market-watchers jamming the switchboards to DC regulators.
IEX says the delay would keep manipulative high-frequency bandits from racing ahead of slower investors and customers.
IEX also argues that its two-sided approach — exempting IEX and delaying others — is not unprecedented. The Securities and Exchange Commission approved a similar kind of router privilege for Nasdaq back in 2012, it contends.
Nasdaq declined to comment for The Post.
But people familiar with Nasdaq’s machinery say IEX is not comparing apples to apples — IEX, they counter, is widely exaggerating the Nasdaq router model, which has a barely perceptible delay by HFT standards.