TMX launches ATS as Canadian regulator threatens HFT levy

Canadian exchange group TMX has launched its alternative trading system, TMX Select, which is aimed at high-frequency trading firms.
By None

Canadian exchange group TMX has launched its alternative trading system (ATS), TMX Select, which is aimed at high-frequency trading (HFT) firms.

Built as a stripped-down, high-speed platform, TMX Select offers participants trading in eight stocks as of 11 July; the remainder of Toronto Stock Exchange (TSX) and TSX Venture Exchange symbols will be phased in over the next few weeks.

Last month, TMX Select released its pricing model, which is designed to offer savings to liquidity takers. TMX Select charges both sides of a trade C$0.0002 per share for stocks priced at C$1 and over and C$0.0001 per share for stocks priced under C$1. Liquidity seekers and providers pay the same fee, unlike the maker-taker model currently maintained by many Canadian marketplaces, including TSX itself.

The platform also has a simplified market structure with continuous trading of board lots only, no special terms such as rebates, a strict price-time priority for all orders and expanded trading hours, from 08.00 to 17.00; in addition, it will operate without market makers.

Canadian regulator the Investment Industry Organization of Canada (IIROC) is currently considering whether to charge exchanges according to message traffic in order to cover the costs of regulating markets that experience high trading volumes.

The proposals, originally made in November 2010, received a mixed response from market participants. Trade body The Portfolio Management Association of Canada argued HFT firms could move to the US; ATS Alpha Group welcomed the move saying it would provide efficiency to the market.

In its response to the public comments, IIROC acknowledged that “HFT could pass on cost increases in quoted prices” however it said that other firms would experience a reduction in market regulation fees and they could equally pass that decrease on. “IIROC will monitor the impact of the new fee model on these and other measures, in order to make any adjustments that are necessary to address unintended consequences,” it concluded.

Development of the regulations is at an advanced stage and IIROC has said that it expects rules to be put in place soon by its management board.

TMX was recently frustrated in its efforts to merge with the London Stock Exchange, after it failed to achieve the necessary two-thirds majority in the company's shareholder vote on the issue. A rival bid by the Maple consortium of local financial institutions, which offered shareholders better terms, is widely thought to have contributed to the collapse of the deal.