Speed Bump (IEX)
The IEX speed bump is a 350-microsecond intentional signal delay — implemented using approximately 38 miles of coiled fiber optic cable — that Investors Exchange (IEX) requires all incoming and outgoing messages to traverse before interacting with its matching engine, designed to neutralize the latency advantages that co-located high-frequency traders would otherwise hold over longer-term investors.
When IEX launched as a trading venue in 2013 and applied for full exchange registration in 2015, it introduced a novel market structure concept: an intentional, non-discriminatory delay applied equally to all order submissions and cancellations. By routing every inbound message through 38 miles of coiled fiber — creating a 350-microsecond round-trip delay — IEX prevents high-frequency trading firms from gaining an execution advantage based solely on the ability to respond to market data faster than institutional investors.
The logic behind the speed bump is rooted in the economics of latency arbitrage. In a conventional continuous order book, a high-frequency market maker can place a bid at $50.00, observe that S&P 500 futures have dropped in Chicago, and cancel that bid before a slower institutional seller can hit it — effectively providing liquidity only when it is safe to do so and withdrawing it precisely when it is most needed. This behavior, called quote fading, is a rational response to latency advantages but contributes to the perception that displayed liquidity is ephemeral and unreliable.
The 350-microsecond delay does not prevent high-frequency trading firms from participating on IEX. It means that by the time any order reaches the matching engine, 350 microseconds have elapsed, during which the market may have moved. For a long-term institutional investor submitting a marketable order, this delay is commercially irrelevant. For a latency arbitrageur whose strategy depends on reacting to signals with sub-100-microsecond precision, the delay substantially reduces the profitability of the strategy.
The SEC approved IEX as a national securities exchange in June 2016 after contentious public comment proceedings in which incumbent exchanges and high-frequency trading interests opposed the speed bump as an unlawful impediment to market access. The approval established that intentional, non-discriminatory delays are permissible under U.S. exchange regulations, opening the door for other market structure innovations involving asymmetric delays. Several other exchanges have since explored or implemented variants of intentional delay mechanisms.