Regulator approves Aequitas NEO for March launch

New Canadian exchange Aequitas NEO has received regulatory approval and could launch as early as 1 March 2015.

New Canadian exchange Aequitas NEO has received regulatory approval and could launch as early as 1 March 2015.

The new exchange is hoping to shake up a Canadian trading with a mutual-style business model and full listing facilities.

Aequitas was founded by its CEO, Jos Schmitt, who earlier this year told that he intended to promote the interests of institutional investors and issuers over those of high-frequency traders (HFT).

“When exchanges demutualise, short-term profit becomes their number one priority and they’ve forgotten who their users are. They no longer serve the needs of investors or issuers,” he said.

The exchange group applied for approval to become a full exchange, which will enable it to also offering listing facilities, to the Ontario Securities Commission (OSC) in June this year, and during its public comment period received significant support from Canadian asset managers.

“We are thrilled to receive approval from the OSC to move forward and launch the Aequitas NEO Exchange,” Schmitt added. “We appreciate the careful review undertaken by the OSC. We are now in a position to help promote confidence and build an exchange of the future using a bold new blueprint that puts investors, companies and their dealers first.”

The group will go head-to-head with Canada’s incumbent operator TMX, which in 2012 bought Schmitt’s previous venture Alpha ATS, which was able to achieve 22% market share in Canada following its 2008 launch.

As well as offering share trading and listing, it also plans to launch a private securities market for firms that are not yet ready to publicly list. The group expects to launch the main exchange in the first half on next year with the private securities market following in Q3 pending regulatory approval.

As well as being majority owned by the buy-side, dealers and issuers, Aequitas also wants to further discourage HTF with rules that will limit the ability of such firms to benefit from latency arbitrage. While it will not exclude HFT firms from trading, it wants to ensure the liquidity they provide is beneficial to investors and issuers.

As such, the exchange will implement a randomised “speedbump” of between 3-9 milliseconds, while passive, resting orders will also be prioritised over short-term orders.

The offering has been compared to US-based IEX, which shot to prominence after featuring in Michael Lewis’ ‘Flash Boys’ book that exposed HFT practices in the US market. The dark pool aims to promote the interests of institutional investors over HFT by implementing a mandatory waiting time before orders are sent to the matching engine.

Private market competition

Is well as Aequitas’ private market offering, TMX Group has launched its own service for unlisted firms.

TSX Private Markets aims to promote efficient capital raising and secondary market trading for the exempt market. Similarly to Aequitas’ proposed offering, it will offer dealing in private and public firms’ shares through approved dealers and accredited investors.

Kevan Cowan, president of TSX Markets, said, “TSX Private Markets is open for business, and we are excited to begin onboarding dealers and companies. Our new service offering aims to address existing challenges and create opportunities in an underserved segment of our markets."