Matt Levine, patient and capable as always, tries again to explain the nearly-incomprehensible: Speed Bumps Are the Hot New Thing for Exchanges
One thing to notice here is that this is the opposite of the IEX story. In the IEX story, investors were sad because they wanted to buy all the stock at the price that was displayed, and sent out orders to buy all that stock at the displayed price, and couldn't -- because high-speed traders reacted to trades on one exchange by pulling their sell orders from other exchanges before the investors' buy orders could be fully executed. In the Chicago story, market makers are sad because high-speed traders tried to buy stock from them at the price they had displayed, and could -- because the market makers couldn't react to trades on other exchanges by pulling their sell orders from the Chicago exchange fast enough. The IEX story is about the sadness of being unable to get all the stock that you want before the price reacts to your demand. The Chicago story is about the sadness of being unable to react to demand before selling all the stock that was demanded.
As Levine observes, this is competition and innovation at work:
It was widely predicted that the approval of IEX as an exchange would create more complexity in market structure, and those predictions are coming delightfully true. Speed bumps will now be a competitive tool for exchanges, but each exchange can build its speed bump to target a different audience. Chicago's speed bump will advantage market makers who provide displayed liquidity. IEX's speed bump advantages investors who place hidden discretionary peg orders, as well as investors who want to buy all the shares on all the exchanges before the displayed liquidity can change -- exactly what the Chicago plan is meant to prevent. Nasdaq's proposed Extended Life Order targets yet another group, of traders willing to leave orders in force for a while. A thousand -- or at least a dozen -- market structures can bloom, each subtly optimized for a different type of trader. It's an innovative and competitive market, in which each exchange can figure out what sorts of traders it wants to favor, and then optimize its speed bumps to cater to those traders.
It sure is confusing, though.