Canadian exchange group TMX has warned that alternative trading system Alpha ATS's IntraSpread dark pool threatens price discovery, following the approval on 8 April of the venue's redesigned internalisation engine by regulator the Ontario Securities Commission (OSC).
Alpha ATS plans to launch the new non-lit venue towards the end of Q2 2011. The firm's CEO, Jos Schmitt, has stated that the new platform will offer low-cost pricing designed to lure retail investors away from TMX and other competitors.
However TMX said in a statement “the facility is contrary to many of the principles that form the foundation of Canada's capital markets,” which it cites as full and fair access for all market participants, visible price discovery and meaningful price improvement for internalised orders.
Alpha ATS and TMX are the two largest trading venue operators in Canada.
for the week ending 8 April, they accounted for 20.43% and 67.45% of daily equity market share by volume respectively, according to trading systems supplier Fidessa.
Alpha had planned to launch dark trading last year, offering a platform that would give buy- and sell-side firms guaranteed price improvement versus the national best bid and offer. However the plan was put on hold in November, as national regulator the Investment Industry Regulatory Organization of Canada imposed a freeze on securities market changes while it upgraded its surveillance system.
The project hit further obstacles in January 2011, following the publication of comments by TMX, which expressed concern that the Alpha plan was designed to facilitate the selective matching of a dealer's retail order flow with its proprietary flow or other client order flow, rather than encouraging liquidity seeking opportunities, order exposure, order interaction and fair access across all participants.
This pushed Alpha into redesigning its dark pool's internalisation engine, removing the internalisation component, which it then submitted for approval to the OSC.
“The new solution allows us to achieve our same objectives, without doing any form of internalisation. It also allows buy-side users to simply place a large order, and then it's managed,” said Schmitt at the time.
Alpha ATS insists its dark facility will help Canadian retail investors, whom it claims have been adversely affected by the introduction of maker-taker pricing on TMX since 2006.