Canada's TMX plans anti-HFT model ahead of Aequitas launch

Thu Oct 23, 2014 10:26am EDT
 
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TORONTO Oct 23 (Reuters) - The operator of Canada's biggest stock exchange plans to launch a trading option for investors not using speed-based strategies, in what appears to be a direct response to the threat presented by incoming player Aequitas.

TMX Group Ltd said on Thursday it plans a "speed bump", minimum order sizes and rebates for active flow on its smaller Alpha exchange.

It will also introduce a "long life" order type on both its main Toronto Stock Exchange and its sister venture exchange which will be executed ahead of other orders at the same price.

The orders will need to commit to a minimum resting time in the book, which TSX said will improve fill rates for natural passive order flow and limit fleeting liquidity, unnecessary intermediation and message traffic.

TMX said it plans to introduce the changes in June 2015. At that time it will also close its TMX Select marketplace and Alpha's IntraSpread dark pool facility.

Meanwhile, Aequitas Innovations Inc is hoping to win regulatory approval this year for a trading exchange designed to curb predatory trading strategies. It plans to launch its rival service early in 2015.

The TMX move follows the recent upgrade of its main trading platform to offer ultra-fast transaction speeds, which mostly benefits traders who use algorithms to make rapid-fire trades.

"We are keenly aware that it is critical for all participants to feel confident in the markets they use, and we are fully committed to listening and adapting our market model to meet their evolving needs," Kevan Cowan, head of the equities group at TMX, said in a statement.

The changes come at a time when both Alpha and the Toronto Stock Exchange have been losing market share to rivals such as Chi-X in Canada.

The TSX, which boasted a market share of over 95 percent in 2007, has seen that share fall to just over 50 percent of trade volumes as of last month. And Alpha, a rival exchange it bought a few years ago, has seen its market share drop to below the 10 percent mark from over 20 percent in late 2009, according to Thomson Reuters trading data.

Over that same time frame, Chi-X Canada has seen its volumes more than double to near the 25 percent mark. (Reporting by Alastair Sharp; Editing by James Dalgleish)