Speed Bumps Are the New Black Larry Tabb TABB Group Follow | Profile | More Share While the IEX speed bump has been in production for more than six years, lately, speed bumps are all the rage, notes Larry Tabb. Cboe is the latest exchange to join the party. While the IEX speed bump has been in production for more than six years, lately, speed bumps have been all the rage. In recent weeks, it’s been hard to read any market structure news without noticing a new trading venue that is announcing or implementing a new and more novel trading delay. We started this journey in 2013 in New York, with Michal Lewis’s “Flash Boys” and the IEX symmetrical (same for passive and aggressive orders) speed bump. When IEX became an exchange in 2016, it generated tremendous controversy as the SEC moved away from the perspective, “the faster, the better.” From IEX we moved into Canada with the adoption of two speed bumps: TMX Alpha’s asymmetrical speed bump (for aggressive orders only), which was paired with inverted taker-maker pricing, and Aequitas’s Neo, which implemented a quasi-randomized 3-millisecond to 9-millisecond match. Last year, we saw AI harnessed to finely time a stock-specific pause to reduce market impact at Imperative Execution’s IntelligentCross ATS/dark pool. Overseas, the Eurex futures market is just beginning the rollout of an asymmetric speed bump, and in the US, the ICE successfully petitioned the CFTC to add an asymmetric speed bump to spur growth in its gold and silver futures. While the ICE speed bump was discussed in context with its flagging gold and silver contracts, however, the proposal does not limit the use of speed bumps to any specific products or contracts. That brings us to last Friday, when the Cboe joined the fray and proposed an asymmetric speed bump for the US equities market. But how do asymmetric speed bumps work? And why are all these markets clamoring to slow down aggressive orders while giving liquidity providers, market makers, and more sophisticated investors the ability to cancel and adjust orders after a liquidity-taking order already has been transmitted to the exchange? I’ve previously written several in-depth commentaries on asymmetric speed bumps and how they change market dynamics. You can read them here: EDGA, the Hot Tub Time Machine of Stock Trading Speedbumps Redux. Sort Of While I’m no fan of speed bumps, these pieces help explain the embedded (and, to my perspective, misaligned) incentives that are created when these delays are employed. Asymmetric speed bumps can be useful in attracting liquidity-providing firms, which post orders and are at risk of being picked off by very fast traders. That said, let’s not be coy; these bumps change the playing field. They tip the market toward liquidity providers and away from liquidity takers. It is this inherent bias at which I take aim, given the majority of liquidity providers are professional market makers while the majority of liquidity takers are individual investors. Regardless, it looks as if speed bumps are here to stay. Buckle up for the ride.