UPDATE 1-Canada's TMX plans options to curb high-speed trading

Thu Oct 23, 2014 2:34pm EDT
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(Adds analyst, rival and executive comment, details)

By Alastair Sharp

TORONTO Oct 23 (Reuters) - Canada's biggest stock exchange operator plans to offer trading options for investors who fear speed-based computer strategies are undercutting them, a move it hopes will keep clients from leaving for rival marketplaces.

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

The company also wants to 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, to limit fleeting liquidity by rewarding those who commit their orders to the book for roughly a second.

The TMX moves follow 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.

The premise for the Alpha move is that active institutional and retail investors value certainty over speed, and will choose to trade there rather than bundle and sell their orders to a trader down south, where payment for such flow is permitted.

"We're looking at a competitive landscape that goes cross-border and our number one competitive issue that we're dealing with here is the potential migration of Canadian trading flow to the United States," Kevan Cowan, head of the equities group at TMX, said in an interview.

He said high-speed traders who remove liquidity from an order book likely won't be fans of the move, but that those who add liquidity would relish the interaction with other investors.   Continued...