Alternative trading system (ATS) provider Alpha Group has launched Alpha IntraSpread dark pool, a non-displayed venue aimed at market participants seeking refuge from the impact of high-frequency trading on Canada's lit markets.
The facility promises “guaranteed price improvement” versus the national best bid and offer; it also aims to maximise trade sizes by prioritising dark orders that can match the full size of the incoming order.
Only retail order flow may trade aggressively in the dark pool, while institutional orders must rest passively, waiting to interact with immediate or cancel orders from retail sources. These dark orders are fully hidden and pegged to the national best bid or national best offer with a price improvement of either 10% (capped to one price tick) or 50% (mid-point). No rebates of fees are paid on this liquidity. All Alpha IntraSpread trades are published in real time.
Alpha has stated that the benefit for buy-side traders using these dark orders is the ability to access un-intermediated retail flow, allowing them to reduce adverse selection costs.
Alpha IntraSpread hopes to attract retail order flow with low pricing – C$0.0004 per share for securities C$1 and above, and C$0.0001 per share for securities with a value below C$1.
“Using the Alpha IntraSpread is a winning strategy for retail investors and retail brokers,” said Jos Schmitt, CEO at Alpha Group. “Buy-side firms and liquidity providers interact only with clear retail flow. This is what enables them to propose prices for execution that are better than the national best bid and offer as available across all lit Canadian marketplaces.”
Canadian exchange group TMX earlier this year published a statement asserting that Alpha's new venue would have a negative impact on price discovery.
However, Alpha insists its dark facility will help Canadian retail investors, whom it claims have suffered in recent years due to the introduction of maker-taker pricing on TMX since 2006 and the subsequent rise of high-frequency trading flow on Canada's lit markets.
The launch of the dark pool was originally intended for last year, but hit difficulties in January 2011 when its internalisation component was blocked by regulators. The dark pool was subsequently redesigned so that it no longer uses internalisation, a change approved by Canadian regulator the Ontario Securities Commission on 8 April 2011.
Agency brokerage and technology provider Instinet recently launched its own dark pool in Canada, Instinet Canada Cross, in May 2011, while Goldman Sachs is also known to be planning a Canadian dark pool, Sigma X Canada, which is expected to launch later this year.
Alpha Group intends tomake its lit ATS platform an exchange by Q4 this year, a move which will enable it to expand its rivalry with TMX into the Canadian listings business.