Canadian stock exchange start-up Aequitas tweaks launch plan

Thu Jan 16, 2014 1:09pm EST
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By Alastair Sharp

TORONTO Jan 16 (Reuters) - Canadian upstart stock exchange applicant Aequitas Innovations Inc has tweaked its proposed trading model after its initial plan was rebuffed by Ontario's securities regulator, the company and the regulator said on Thursday.

The Ontario Securities Commission (OSC) revealed on Thursday it had blocked Aequitas' initial proposal because it restricted access to visible orders, which breaks OSC rules ensuring fair access.

Aequitas is aiming to break the dominant grip of Toronto Stock Exchange operator TMX Group with a model that limits controversial high-frequency trading (HFT) strategies.

It plans to offer so-called lit and dark markets, as well as a hybrid market combining features of each.

In a dark market institutional investors can trade in large volumes without tipping their hand about pricing by not displaying their orders. More typical and traditional lit markets offer price discovery via bid and ask quotes.

The prospective exchange operator said on Thursday that in response to the OSC decision it would instead make HFT uneconomical via fees and speed-bumps, rather than restrict access outright.

High-frequency traders use sophisticated algorithms to trade thousands of shares in a millisecond with the aim of earning a profit from market making and price imbalances. But many players, including some large fund managers, have criticized their impact on markets.

The OSC will seek comment on the amended proposal as part of Aequitas' application for recognition as an exchange, which Aequitas plans to submit in the current quarter. The exchange operator had originally planned to launch by the end of this year, but now hopes to roll out its service in the first half of 2015.   Continued...