TORONTO, May 4 (Reuters) - TMX Group Ltd, the owner of Canada’s major stock exchanges, said on Monday it plans to gradually reduce its rebate and fee structure in a bid to address concerns around the model and to tackle competitive threats.
Critics say the widely used fee and rebate system, which is called the “maker-taker” model, distorts stock-order routing practices as brokers may be enticed to send orders to markets where they get paid the highest, instead of acting in their clients’ best interests.
It is one of several issues that have come under renewed scrutiny after author Michael Lewis, a well-known critic of Wall Street practices, questioned the model of paying brokers as an incentive to entice liquidity.
TMX Group, which operates the Toronto Stock Exchange, the TSX Venture Exchange and TSX Alpha Exchange, said its “marketdriven solution” will address the issues head-on.
Last year, Nasdaq Chief Executive Robert Greifeld urged U.S. regulators to reexamine the pricing model that stock exchanges use to attract trading, joining the debate about fee-based incentives for traders.
The TMX contends a drastic reduction or outright removal of the maker-taker model could have a negative impact on the market, causing increased spreads, a rise in volatility and loss of liquidity.
The Toronto-based company said it is instead introducing a program of phased reductions in maker-taker rates that is aimed at gradually lowering dealers’ active trading costs, minimizing unnecessary intermediation and increasing investor confidence.
The first phase of reductions, which will be effective June 1, subject to regulatory approval, will differentiate between fees for interlisted and noninterlisted securities to maintain the competitiveness of the Canadian market relative to the U.S. market. (Reporting by Euan Rocha; Editing by Peter Galloway)