When IEX launched the D-Peg order type in 2014, it set a new standard for midpoint quality. IEX already had a Speed Bump and Midpoint Peg order type, but D-Peg introduced something extra: the Signal. While the Speed Bump is designed to protect D-Peg against trading at stale midpoint quotes, the Signal adds an additional layer of protection by guarding against trading at quotes that are about to change because the market is in transition. That dual layer of defense allows D-Peg to be highly effective in achieving stable midpoint trades.
The market has changed a lot since 2014. IEX has become a national stock exchange, multiple other new exchanges have arrived on the scene, and more recently, competitor ATSs with similar “Speed Bumps” have appeared. But IEX hasn’t just been standing still in the last decade - we have continued to innovate and improve D-Peg by repeatedly upgrading the Signal over time in response to market changes.
IEX becoming a national stock exchange in 2016 helped increase the number of firms using D-Peg, broadening the pool of availability liquidity. It also made D-Peg trades to be “attributable” on the tape, helping heat-mapping tactics for counterparties looking to trade at the midpoint, enabling D-Peg to source even more liquidity.
Some have worried that as IEX grew and “opened up”, that perhaps D-Peg performance would degrade over time. The above chart shows that that is decidedly not the case. Looking at short-term markouts, we can see that D-Peg still helps keep adverse selection to a bare minimum, staying within 2% of spread from midpoint in the 1-10 second horizon. Over a longer 5-minute period, we also see a flat line, suggesting that D-Pegs do not exhibit systematic market impact or information leakage, despite the large parent order sizes that may be behind them and their attribution to the tape.
While new midpoint venues and order types may seem exciting, the proof is in the pudding. D-Peg remains as performant as ever for achieving stable midpoint trades in both the short and long-term, showing the same reliability and efficiency it's always had.
Sam Stevens
Head of Business Analytics