A proposed equity trading venue awaiting regulatory approval, named Aequitas, could spur significant market structure changes in Canada, agency broker ITG has stated in a report.
The venue is backed by ITG Canada alongside a number of buy- and sell-side firms. In the report on Canadian market structure, ITG said the venue would sit in the same category as recently-launched US alternative trading system (ATS) IEX and European multilateral trading facility Aquis Exchange.
These venues seek to offer institutional investors greater ability to match trades compared to broker-specific dark pools, and could force Canada’s largest equity market operators to adjust their models, ITG said.
“Since Aequitas was announced, the TMX has constructed a buy side advisory panel to consult on any market structure or pricing changes,” it said in the report. “While we are not aware of any plans for other lit markets to follow suit, they will undoubtedly feel pressure from the buy- and sell-side to increase transparency around, and input into, any major changes.”
Aequitas is expected to gain regulatory approval midway through 2014 and seeks to operate three distinct markets: a dark pool, a lit venue and a hybrid venue.
In an introductory statement on its website, Aequitas said it wanted to create an exchange that “protects the interests of all investors and reflects the fundamental purpose of markets: the efficient allocation of capital between issuers and investors.”
The ITG report also foreshadowed the dramatic growth of high-frequency trading (HFT) activity in Canada as new arbitrage opportunities would be created with new exchange technology from TMX, which operates Canada’s largest exchange.
“We believe the latency reductions at TMX will result in HFTs having an increased ability to trade ahead of many dealers, and avoid trading against larger orders, which should increase both HFT participation rates and trading costs,” the report, authored by Doug Clark, head of Canadian research for ITG, stated.