TORONTO (Reuters) - Aequitas Innovations Inc, a venture backed by some of Canada's biggest financial entities, won approval from the country's main securities regulator on Monday to launch a new stock exchange seeking to challenge TMX Group Ltd's (X.TO) dominant Toronto Stock Exchange.
The regulator, the Ontario Securities Commission, said the exchange, called Neo, can start operating on March 1.
Aequitas - a Latin term denoting fairness and the origin of the English word equity - is backed by Royal Bank of Canada (RY.TO), Barclays Plc (BARC.L), pension fund OMERS Capital Markets, mutual fund managers CI Financial Corp (CIX.TO) and IGM Financial Inc IGM.TO, telecom company BCE Inc (BCE.TO) and others.
Aequitas says it is entering the industry to help issuers and long-term investors plagued by the ill-effects of predatory high-speed trading, costly data and lack of liquidity. It says these trends now so dominate trading that room has opened up for a market that will offer fair and transparent trading for all.
“Things have become so tilted towards one constituency that you can make money by doing the right thing for everyone,” Aequitas Chief Executive Jos Schmitt told Reuters in an interview.
Schmitt, an industry veteran who ran the Alpha exchange before it was acquired by TMX, said that, typically, exchanges encourage greater trading volume "even if it is superfluous volume," so they can collect fees. He said this extra volume has not improved liquidity.
The Aequitas model, which also includes plans for a private marketplace to fund early stage companies, will attempt to limit controversial high-frequency trading strategies by implementing extra costs and speed bumps for them.
High-frequency traders use sophisticated algorithms to trade shares in milliseconds. Many players, including some large fund managers, criticize their market impact.
TMX, which operates the Toronto Stock Exchange and other markets, has moved to counter the threat posed by Aequitas. It plans a market for privately-held companies and trading options for investors who fear speed-based computer strategies undercut them.
Schmitt said Aequitas had hoped for between five and 15 financial institutions to act as market makers, which pledge to offer bid and ask prices for securities.
He said expressions of interest to play that role are already near the top end of that range.
Editing by Chizu Nomiyama; and Peter Galloway