How IEX's Speed Bump Revolutionized Stock Trading

In 2012, a Canadian trader named Brad Katsuyama noticed something strange. When he tried to buy shares for his clients at Royal Bank of Canada, the price would mysteriously jump the instant he clicked "buy." The shares he saw available on his screen would vanish before his order could reach them.

What he discovered would eventually become the subject of Michael Lewis's bestselling book Flash Boys and spark one of the biggest debates in modern market structure.

The Problem Katsuyama Found

Modern stock trading happens across multiple exchanges. When you want to buy 10,000 shares of Apple, your order gets split up and sent to different venues, NYSE, Nasdaq, BATS, and others.

Katsuyama realized something was exploiting this fragmentation. High-frequency trading firms had figured out how to see his orders hit one exchange and then race ahead to the others. In the milliseconds it took his order to travel between venues, these firms would buy up the available shares and sell them back to him at a slightly higher price.

This practice is called latency arbitrage. It works because information about trades travels at different speeds to different places. A firm with faster connections can essentially see the future, at least a few milliseconds of it.

The amounts were tiny on any single trade. A fraction of a penny here, a few cents there. But across billions of shares traded daily, those fractions added up to real money leaving the pockets of pension funds, mutual funds, and ordinary investors.

What Exactly Is a Speed Bump?

So Katsuyama started his own exchange called IEX (Investors Exchange). IEX launched with one strange innovation. They coiled 38 miles of fiber optic cable into a box and made every order pass through it.

Every order coming into IEX has to travel through this coil, adding a delay of 350 microseconds. That's 350 millionths of a second, about the time it takes light to travel 65 miles.

Why does this tiny delay matter? Because it gives IEX's computers enough time to receive price updates from other exchanges before processing incoming orders. When a high-frequency firm tries to race to IEX to pick off stale quotes, that 350-microsecond cushion means the IEX quote has already updated. The speed advantage that made latency arbitrage profitable simply disappears.

More Than a Speed Bump

IEX's approach goes beyond the speed bump itself. The exchange built its entire model around "fair access", the idea that all market participants should compete on the quality of their decisions, not on who has the fastest connection.

Most exchanges let traders rent server space right next to the exchange's computers. Closer means faster. IEX doesn't offer this. Everyone connects through the same access point.

Traditional exchanges also offer dozens of complex order types that sophisticated traders can use to game the system. IEX keeps things straightforward with a handful of basic options. And while some venues pay brokers to send them orders (creating misaligned incentives), IEX charges flat fees instead.

The goal is simply to remove the structural advantages that let speed alone determine who wins.

Has It Worked?

It seems so. In 2018, SEC economist Edwin Hu studied IEX's impact and found that market quality actually improved for stocks that traded frequently on IEX. The gap between buy and sell prices narrowed.

The exchange has grown steadily since launching as a national exchange in September 2016. Its displayed market share tripled between June and late 2024. In 2025, IEX won the Global Markets Choice Award for "Most Innovative Exchange."

IEX wasn't alone in this approach for long. NYSE American copied the 350-microsecond delay in 2017, then scrapped it two years later. Canada's NEO Exchange went a different direction with a randomized delay that only hits high-frequency traders taking liquidity. Nasdaq didn't add a speed bump at all. Rather, they created an order type that holds orders for half a second before they can execute.

These variations show there's no single "correct" way to level the playing field. Different markets may need different solutions.

What This Means for Regular Investors

If you buy stocks through a regular brokerage, none of this changes how you place orders. But it affects the price you get. When latency arbitrage runs unchecked, you pay a little more. Not enough to notice on one trade, but it adds up.

For a long time, everyone assumed faster markets were better. IEX disagreed. Their bet was that slowing things down by a few microseconds would make trading fairer. So far, the data backs them up.