Canadian exchanges set out pro-buy-side offerings

Two Canadian exchange operators have set out rival visions for how to provide trading environments more conducive to investors.

Two Canadian exchange operators have set out rival visions for how to provide trading environments more conducive to investors.

TMX, Canada’s largest markets operator, and Aequitas Innovations, a new startup that will launch a full exchange in March next year, are both looking to provide markets that will provide better trading conditions for the buy-side while reducing the impact of predatory strategies such as high-frequency trading (HFT).

In October, TMX released a white paper outlining new changes it is planning to make to some of its exchanges.

Both groups are opting to implement a “speedbump” to their order books, which will delay new orders coming to the market to make it more difficult to execute latency arbitrage strategies.

TMX’s speedbump will be applied to its Alpha trading platform in order to provide greater certainty of execution and size of transaction for market participants.

“Developed in the context of the Canadian regulatory framework and accessible on an equitable basis to all participants, this model will deliver improved economics for investors and dealers, and offer an attractive solution for the execution of active natural order flow in Canada,” TMX said.

Aequitas is also introducing speed bumps, but is taking a more selective approach in only applying the delay to identified HFT members using aggressive strategies.

The different ways to dealing with latency arbitrage have seen Aequitas CEO Jos Schmitt, criticise TMX’s implementation.

“Applying a blanket speedbump doesn’t help the investor community as the HFTs will still have advantages over them with the kind of technology they use, that’s why we’re only applying it to known HFT firms,” he told

However, TMX hit back saying it wanted to encourage positive trading behaviours instead of singling out users.

Kevin Sampson, vice president of business, development and strategy at TMX Group, said, “We don’t want to apply advantages or disadvantages to specific members based on a subjective judgment of the type of investor they are.”

Another area the two firms disagree on is how to treat passive resting orders. TMX will enable passive orders, that is those that have rested for several seconds or more, to receive priority over orders that have not met the minimum resting time.

Sampson explained, “We want to reward market participants for providing lasting liquidity, and with user feedback we’ve developed this new passive order type that will allow users who want to commit to their order to improve the chance of getting a fill.”

However, Aequitas is also planning a passive order type, though says its threshold will be much higher than a few seconds.

“Institutional investors, especially many long-only asset managers, want to rest their orders for significant periods of time, and several seconds is still far too fast to benefit these investors over HFT.”

TMX has also recently launched a qualified investor market for unlisted securities, some Aequitas also plans to add to its offering in the second half of 2015. With the latter also planning to offer listing services, when it launches next year, the two groups are set to compete on many of their major business lines, with both claiming they are focused on improving trading conditions for retail and institutional investors.

TMX’s Alpha alternative trading system was founded by Schmitt before being acquired by TMX Group. Prior to its takeover, it has amassed a substantial market share in Canada, something he hopes to replicate with Aequitas.

TMX is currently consulting on its proposed changes with market participants. Aequitas received regulatory approval to launch a full exchange in November, and plans to go live towards the end of March 2015.