I think the "black and white" rule that the large firms who feel they are being hurt by HFT want is the ability to execute a full trade before it impacts the market (since otherwise it's impossible to describe the exact moment they feel their trade is a signal to be traded off of). I think that's highly unreasonable, but if you do believe that I think IEX is probably relatively successful at it. It's totally possible that a block could be fully sold off on IEX before the 350ms latency allows that information to escape to the outside world and be traded against, no? Market impact is ultimately about the same, just delayed enough to allow the seller to escape.
I would happily be correct on any of this, since I don't work in finance.
These guys are ginormous. $100m block is about a 0.01% position for them. You can't just put a limit order on IEX (or any other exchange for that matter) when you're dealing with this magnitude. You need a team of specialists working full time disguising the order and parceling it out to multiple venues, and it will usually take days to get it done.
The other way of moving a block this size is by finding a natural counterparty and negotiating a deal directly with them. The trade will then get booked through a broker-dealer for reporting and settlement purposes. Those kinds of negotiations take days, too, and you can't avoid showing your hand. Plus, it's not a very scalable solution.
Let's say B instead only buys 250 shares, what happens to the remaining 250 shares?
IEX has this transit latency because they have order types that offer pegged execution, i.e. midpoints. A midpoint order is executed at the midpoint of the prevailing NBBO. The data required to build a view of the prevailing NBBO comes in from all other lit venues.
IEX has a 350us delay because they want to slow down the order entry side to give themselves enough time to make sure they are not pricing their pegged orders using stale market data. Simple as that.
Sell siders are compensated because they will build into the price the expected impact. The pension fund gets a known price impact with essentially 0 variance and the sell sider takes on the risk of execution to offset the trade, and essentially earn a spread between what the pension fund paid them for the risk transfer and their 'skill' in getting the trade done in the market.
It obviously can and will be more complicated than that with varying benchmarks and compensation schemes, but that is the jist of it.
I suspect that an equity desk takes the block, parcels it out into lots of small pieces, and works the market to get it off their books. Of course, they charge for that service, both in commissions and spread. So effectively, instead of paying HFT firms for providing liquidity, they're paying an investment bank equity desk. Does this really save money? If it does, why all the hoopla about HFT if you can avoid them by going through an equity desk?
Don't tell me that they just put their block on IEX and the tooth fairy fills it without price impact. That would be some serious magic.