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Survival of rebel stock exchange in peril after patent infringement suit

The rivalry between Nasdaq and IEX Group, the controversial startup stock exchange rolled out some years ago by a former investment banker, has reached the tipping point with the former filing a lawsuit alleging that IEX infringed on a series of its technology patents.

The setback comes at a time when IEX is preparing to start listing companies, after securing SEC approval last year. IEX has been in the eye of the storm after it was made popular by Michael Lewis in his best-selling book ‘Flash Boys’.

Through his elaborate depiction of the ‘dark side’ of Wall Street, highlighting the evils of internet-supported speed trading, Lewis in his book had concluded that the model adopted by IEX was a more reliable alternative to the conventional system, which according to him was ‘rigged’ to help big traders.

Picture Courtesy: Wikimedia Commons

While the trading community was divided in their response to the non-fiction book, the latest developments would definitely spoil IEX’s reputation as a people-friendly stock exchange and the Good Samaritan image of its CEO Brad Katsuyama. Worse, it came when IEX is struggling to expand its meagre market share prior to starting operations.

Katsuyama, a former banker, began his crusade against what he called a ‘fundamentally flawed’ financial system after the subprime crisis brought he US banking sector to its knees more than a decade ago.

The setback comes at a time when IEX is preparing to start listing companies, after securing SEC approval last year

Nasdaq in the suit said IEX violated up to seven of its patents related to various key technical procedures involved in stock trading. The new-gen stock exchange had invited the ire of Nasdaq when it poached some of the latter’s technology staff during the initial years. The suit claimed that IEX owed its advanced trading platform to Nasdaq’s patented technology.

“These former Nasdaq employees helped build the earliest version of IEX’s trading platform and continued to work on modifications thereafter,” stated the lawsuit.

The complaint also seeks to stop IEX from using the ‘stolen’ technology, in which a huge amount has been invested, and claimed substantial damages.

Dismissing the charges, IEX sources said, “Similar to our exchange application process, this is yet another attempt by Nasdaq to obstruct an innovative new competitor.”

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