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This former equity trader reveals one of the biggest problems with the stock market

Scott Gamm
Reporter

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Former equity trader Brad Katsuyama is sounding the alarm on how the major stock exchanges, like the New York Stock Exchange and the Nasdaq, make money.

Katsuyama is the co-founder and CEO of IEX, which bills itself as a less expensive alternative to the major stock exchanges.

“Most people think of exchanges as non-profit utilities,” Katsuyama told Yahoo Finance at the SALT Conference in Las Vegas. “In reality, they make more money selling high speed data and technology than they do from actually matching buyers and sellers.”

Time is money

The exchanges charge money for access to data on stock prices. The more money an investor or money manager is willing to pay, the faster data they can receive.

“This creates an unlevel playing field,” Katsuyama said. “They’re selling advantages to one class of trader who can trade at faster speeds than nearly everybody else.”

Katsuyama said the exchanges have found a way to profit from selling different levels of data that allow faster traders to profit off of slower traders.

“The purpose of a stock market is to be a neutral referee,” he said, adding that IEX, offers free data on its exchange.

Scott Gamm is a reporter at Yahoo Finance. Follow him on Twitter @ScottGamm.

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