IEX Exchange to Exit Listings Business

IEX Group Inc. will abandon its listings effort after the upstart exchange’s only listed company decided to jump ship.

The move means that corporate listings will remain an effective duopoly of the New York Stock Exchange and Nasdaq Inc., despite a long effort to break into the business by IEX, whose founders were the heroes of Michael Lewis’s 2014 book “Flash Boys: A Wall Street Revolt.”

“It has become clear that the legacy exchanges have a stronghold on this market,” IEX Chief Executive Brad Katsuyama said in a blog post Monday. He called the decision to exit listings “a tough one emotionally” and added that IEX would focus on other businesses, including developing technology and market-data services for traders.

News of IEX’s planned exit from listings was reported late Sunday by The Wall Street Journal. IEX made the decision after its only listed company, Interactive Brokers Group Inc., IBKR +0.31% decided to switch back to Nasdaq, people familiar with the matter said.

The Greenwich, Conn.-based online brokerage said Monday that it would switch to Nasdaq Oct. 7. Interactive Brokers’ chairman and founder Thomas Peterffy said in a statement that the company had reversed course after IEX failed to attract more listings and trading volume. Compared with Nasdaq, he said, IEX had fewer market-makers–electronic trading firms that quote prices in a company’s stock.

“We gave it a year and we tried our best, but we now have to accept that, in spite of our good intentions, returning to Nasdaq will be best for our shareholders,” he said.

IEX handles 3% of U.S. equities trading volume, compared with about 20% for Nasdaq.

Interactive Brokers became IEX’s first listed company a year ago. It is now leaving because of concerns about how its shares have traded on IEX, including wider bid-ask spreads, the people familiar with the matter said.

Such spreads are the difference between the buying and selling price of a stock. When they widen, investors pay more to trade in and out of a company’s shares.

IEX had worked for several years to break into listings. Representatives of IEX approached hundreds of companies as part of the effort, including household names such as Amazon.com Inc. and air carrier United Continental Holdings Inc.

IEX offered NYSE- and Nasdaq-listed companies steep discounts on their listing fees if they switched over. But the effort was marred by delays and the IEX listings team went through several management changes.

In the listings business, companies pay fees to an exchange for it to be the primary marketplace for their shares. NYSE parent Intercontinental Exchange Inc. and Nasdaq earned a combined $734 million from listings last year, according to the companies. A third exchange group, Cboe Global Markets Inc., has a listings business, but it is focused on exchange-traded funds rather than corporations.

To win listings, exchanges present companies with arcane data on the quality of their markets, while also touting perks such as bell-ringings at the NYSE’s historic trading floor or advertising on Nasdaq’s electronic billboard overlooking Times Square.

Nasdaq CEO Adena Friedman said in a statement that her company was proud to regain Interactive Brokers as a client. The company’s return is a coup for Nasdaq, whose listing business has been on a winning streak lately.

Earlier this month, the parent company of WeWork chose Nasdaq over the NYSE for its initial public offering. So far this year, IPOs on Nasdaq have raised $27.1 billion, compared with $24.1 billion at the NYSE, according to Dealogic data. The last year when Nasdaq beat the Big Board in capital raised was 2012.