A Canadian market regulator is consulting on the proposed launch of an alternative equities exchange that seeks to differentiate itself with a dual order book and new pricing model.
Market participants have until 29 September to submit comment to the Ontario Securities Commission about the potential impact to Canadian market structure of the proposed alternative trading system (ATS), Aequitas Exchange.
The venue will attempt to break the equities trading hegemony of TMX, which owns the Toronto Stock Exchange and alternative venue TMX Venture Exchange and Alpha. Aequitas will differentiate itself from competing venues by offering a lit order book that encompasses some dark pool functionality, named a hybrid book, alongside a completely anonymous dark pool.
Although pricing details have not been finalised, the venue will seek to employ a taker-taker fee model across both pools and offer discounts for retail orders to offer savings for both retail and institutional participants.
Jos Schmitt, CEO of the venue’s parent company, Aequitas Innovations, told theTRADEnews.com the venue would restrict predatory activity that limits buy-side execution quality.
“Aequitas believes that its suite of offerings and eco-system will apply material competitive pressure on the make-take model in general which it believes will moderate industry dependence on this pricing scheme over time,” he said.
He said the Canadian market would benefit in particular from an alternative to matching priorities operating in existing markets. Schmitt said current matching priorities in Canada took into account price, broker preferencing and then time, while Aequitas proposes price, broker, preferencing, market maker, weighted time/size.
“The compensation that Aequitas proposes for market makers is higher matching priority for its assigned securities in the dark and hybrid books, where they are not exposed to predatory flows,” he added.
Aequitas will enter a market becoming squeezed with competition. Apart from Alpha, which the TMX Group acquired last year, there are a number of ATSs operating in Canada, including two operated by market operator Chi-X Canada.
Despite this, TMX Group maintains a strong hold on volumes, with an April report from consultancy Tabb Group showing 83% of equity market volumes execute on a TMX Group platform.
The most recent ATS to launch was Chi-X Canada’s second ATS, CX2, which launched in May, offering a taker-maker pricing model that sought to target an underserved portion of the market – namely mid-tier brokers and the retail market.
Reporting by Jessica King