Canadian alternative trading system (ATS) operator Alpha Group expects to become an exchange by Q4 2011 and aims to challenge the listings dominance of the TMX Group, following its regulatory filing last month.
The firm's application was sent out for a 45-day public comment period by the Ontario Securities Commission (OSC), a provincial regulator, on 15 April 2011. As an ATS, Alpha is currently able to trade securities, but cannot list them. If the application is successful, issuers will be able to go directly to Alpha – meaning it will no longer be necessary to list on the Toronto Stock Exchange (TSX).
At present, TMX, which operates TSX, as well its TSX Venture exchange for small and medium enterprises and the Montreal Exchange for derivatives, is the only major listings venue in Canada. Although alternative venue the Canadian National Stock Exchange has some 151 listings, TMX lists approximately 3,600 firms.
“I think it's realistic that our exchange should become operation in the fall, i.e., Q4 2011,” said Jos Schmitt, Alpha Group CEO.
Alpha has been seeking exchange status since April 2010. Citing what he calls ”excessively high' fees on TMX, Schmitt argues that the Canadian listings space is stifled by an effective monopoly, resulting in a lack of innovation that is leaving the needs of issuers unmet.
“The exchange has stood still with regard to listing requirements and has not adjusted them to take account of the reality,” he said. “There are some areas of Canada that are totally underserviced.”
TMX cites the Toronto bourse's scale and history as key factors in attracting investor interest in issuers' shares. Alpha will seek to differentiate itself in the listings market in terms of alignment with global standards and transparency.
“We see an opportunity to bring in healthy competition, like you see in the US with NYSE and Nasdaq, and I think it will be great for issuers,” added Schmitt.
Once the public comment period has closed, the OSC will review the responses and make a judgement on the need for changes to Alpha's filing.
Separately, Alpha is also currently planning to launch a dark pool, IntraSpread, with a target launch set for late May or early June. Intended to appeal to Canadian retail investors, whom it claims have been disadvantaged by the introduction of the maker-taker pricing model on TMX since 2006, the new facility received regulatory approval last month.
Matching in the dark pool is based on price size priority. Alpha claims that trades executed on IntraSpread will be fully executed in one clip in most cases – thus avoiding the large back-office costs associated with heavily fragmented trades.
In addition, there are no rebates for contributors who post liquidity. “We wanted to ensure that those who trade are people who come with clean flow, so that liquidity providers are not taken advantage of,” explained Schmitt. “The aim is to protect them from predatory trading – people posting orders just to see who is there, etc.”
TMX is opposed to Alpha's plans for IntraSpread, arguing that the new facility will harm price discovery in Canada.
Alpha intends to release the software to allow users to connect to the dark pool imminently. In addition, all marketplaces will need to provide a regulatory feed to the Investment Industry Regulatory Organization of Canada, which conducts market surveillance, before trading can begin.
The firm also has plans to offer internalisation technology as a separate package to broker-dealers, though it will not use the technology itself. The package, Alpha uCross, is awaiting regulatory review before it can be sold to users.
Alpha had originally intended to incorporate the internalisation mechanism into IntraSpread. However it was unable to do so after Canadian regulators required the removal of the internalisation component, following objections raised during public comment earlier this year.
TMX is currently working on a merger with the London Stock Exchange Group. The deal, which is subject to regulatory approval, is valued at around Â£4.3 billion.