(Bloomberg) -- IEX should have a clear path to winning SEC approval to be a stock exchange despite claims that its trademark speed bump would violate market rules, according to a top U.S. financial regulator.

IEX’s proposal to briefly pause incoming orders is probably consistent with rules that seek to ensure a fair and competitive trading environment, FINRA CEO Rick Ketchum said this week. Regulations “should be sufficiently flexible” to accommodate IEX’s proposal as long as the delay is fully disclosed and found to benefit investors, he added.

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. The firm made famous by Michael Lewis’s 2014 book, “Flash Boys,” has been feuding with critics for months over the design of its market, with both sides lobbying the SEC and Congress.

“I think what they have done is creative,” Ketchum told an audience of lawyers and lobbyists hosted by the Exchequer Club in Washington. “If I were focusing on that, I would focus less on the speed bump.”


While Ketchum has no direct say in whether IEX ultimately wins approval, he is a longtime expert on Wall Street regulation whose views carry weight at the SEC. He worked at the agency as director of the division that regulates exchanges in the 1980s and 1990s. His current organization, FINRA, also has a stake in the debate, because it has contracts with many exchanges to carry out their regulatory obligations.

The SEC has until March 21 to approve or reject IEX’s plan. The commission also could seek more time, potentially dragging out a decision for months.

One possibility is that IEX could be forced to change the way another important feature of its market, called a router, works. Critics including Citadel say IEX’s system for sending orders to other venues could temporarily deprive traders of important information about executions that they should have immediately.

“I’m not saying it can’t be approved but the router issues are complex,” Ketchum said in an interview after his speech. “It seems to me those are the most difficult ones for the SEC to work through.”

In a letter to clients posted Wednesday, IEX defended how it would route orders to other venues. The company said it’s simply trying to shield its customers from predatory traders who would step in front of their orders on other exchanges.

With assistance from Annie Massa.

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