TORONTO (Reuters) - Ontario’s securities regulator is seeking opinions on a prospective exchange operator’s radical proposals about market trades and will mull whether to amend rules governing Canadian markets to accommodate the newcomer.
The new entrant, Aequitas Innovations Inc, aims to break the dominant grip of Toronto Stock Exchange operator TMX Group (X.TO) on Canadian equity trading with innovative structures that it says will improve the overall quality of trading.
Aequitas is backed by Royal Bank of Canada (RY.TO) and other big investors and has yet to file for an operating license. It has, however, filed a patent for its hybrid lit-dark order book. The hybrid combines aspects of a dark market, where institutional investors can trade in large volumes without tipping their hand about pricing, with a more typical lit market that offers price discovery via bid and ask quotes.
The Ontario Securities Commission, Canada’s main regulator, has rules for both types of markets. It does not have a rule book for a market place that combines them, leading to Tuesday’s consultations, which have a September 27 deadline.
The OSC also wants market participants to comment on whether Aequitas should be able to offer priority in trade execution to market makers and add market makers not accredited with the Investment Industry Regulatory Organization of Canada, Canada’s main self-regulatory body.
“It is an enduring objective of the OSC’s work in this area that markets remain fair and participants have confidence in market quality and integrity, including order entry, execution and settlement processes,” the regulator said in the request for comment posted on its website.
Aequitas said it was eager to hear the views of the investing community during the 45-day consultation process, which opened before Aequitas has even filed an application for recognition as an exchange.
“We are extremely happy that they are actively participating in the dialogue that we initiated,” Aequitas’ chief executive, Jos Schmitt, told Reuters. “When I look at the objectives that the regulations seek to achieve and I look at what we seek to achieve, I think we are tremendously aligned.”
Aequitas would be a direct competitor to TMX, which handles roughly 80 percent of equity trading by value in Canada.
Aequitas on Tuesday added telecom blue-chip BCE Inc (BCE.TO) and pension fund OMERS Capital Markets to a list of founding investors. That list includes Barclays Plc (BARC.L), Canadian mutual fund managers CI Financial Corp (CIX.TO) and IGM Financial Inc (IGM.TO), pension fund PSP Public Markets, and Investment Technology Group Inc (ITG.N) as well as RBC.
TMX is controlled by a consortium of Canadian banks and other financial institutions. RBC, the country’s biggest lender, was one of the few Canadian banks not involved in the consortium, as it had advised the London Stock Exchange on an unsuccessful bid for TMX.
Editing by Andrew Hay