Facing a barrage of criticism from rival exchanges and hostile high-frequency traders, IEX Group Inc. is adding lobbying reinforcements as it prepares for a fight in Washington in its bid to become a full-fledged stock exchange.
The firm made famous by Michael Lewis’s 2014 book, “Flash Boys,” said Tuesday it hired Republican lobbyist Douglas Nappi, a former chief counsel to the Senate Banking Committee. Both sides are scouring Capitol Hill for allies as they seek to influence the Securities and Exchange Commission’s decision on IEX’s application expected as soon as next month.
Competing exchanges and some brokerage firms have attacked IEX’s speed bump, a feature that the company says restricts high-frequency traders from jumping ahead of slower-moving investors. With lobbyists swarming Congress, lawmakers including Republican Representatives Sean Duffy and Randy Hultgren have waded into the fight, echoing arguments made by IEX critics, such as Citadel LLC. So far IEX has used just one lobbyist, Peter Haller, who previously worked for Goldman Sachs Group Inc. and the Republican staff of the House Financial Services Committee.
“We know we can’t match the lobbying resources of the big exchanges, but given Doug’s background he is well-suited to help communicate how we are working to provide a positive choice for investors,” said John Ramsay, IEX’s chief market policy officer.
The SEC has until March 21 to approve or reject IEX’s plan, although the commission could also defer its decision, potentially dragging it out for months. IEX could be forced to change the way important features of its market work, including its process for routing unfilled orders to other venues. Citadel and others say IEX’s router could temporarily deprive traders of important information about executions that should be available immediately.
Nappi didn’t return a phone message seeking comment. He worked for Senator Richard Shelby when he served on the banking committee from 2003 to 2005, according to his lobbying firm O’Rourke & Nappi’s website. Shelby, an Alabama Republican, is currently chairman of the banking panel, which has scheduled a hearing for March 3 where IEX’s application is likely to be scrutinized by lawmakers from both parties.
Nappi’s recent clients have included JPMorgan Chase & Co., the Financial Industry Regulatory Authority, and the American Bankers Association, according to Senate lobbying records. He lobbied for the New York Stock Exchange until August 2014, when the relationship was terminated, records show. NYSE is opposed to IEX’s exchange bid and the head of its parent company has said the upstart would have an unfair advantage if its application is approved with the speed bump.