An upstart trading firm wants to become part of the establishment ? and it is dividing Wall Street

REUTERS/Brendan McDermid

Specialist trader Michael Pistillo (2nd L) gives a price for a stock just after the opening bell on the floor of the New York Stock Exchange August 28, 2014.

Several big names investors have backed the application. Rivals have lodged responses criticizing the application. IEX subsequently took a swing at those rivals in two separate letters.

Now Modern Markets Initiative, an industry body that advocates for high frequency trading, has responded, arguing that the IEX's application should be "rejected on principle."

That MMI opposes the IEX application should not be surprising. The two are on opposite sides of the debate over the virtues and pitfalls of high speed trading. IEX, led by Brad Katsuyama, uses a 350-microsecond "speed bump" which is says levels the playing field between hyperfast traders and ordinary traders.

It even frames its application around the question of whether the national market system should allow an exchange to "counteract the more pernicious aspects of speed-based trading."

The MMI, in response, asks "what pernicious trading?"

It said:

By its stated premise, IEX creates a burden of proof it fails to meet. It does not provide any data establishing the presence of "pernicious aspects of speed-based trading" that should compel the Commission to allow exchanges to adopt "any means" to remedy them. At its thesis, this Application demonizes high frequency trading while providing no basis for its conclusions."

Later, it said (emphasis ours):

IEX is free to compete and offer innovation to the marketplace. Several MMI Members trade on IEX and, similar to what HFT firm Virtu has stated, engage in the same market making strategies on IEX as on automated trading systems run by other broker-dealers. However, when any firm petitions the Commission with a proposal to use extraordinary means to counteract harm to investors it cannot prove exists, we believe the application should be rejected on principle.

IEX filed to become a stock exchange in September. All of the feedback is available here.