UPDATE 2-New Canadian stock exchange seeks to challenge dominant TMX

Tue Jun 25, 2013 2:27pm EDT
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* Backers include Royal Bank of Canada, country's largest lender

* Aequitas takes aim at high-frequency trading

* Expects to launch late next year

* Hopes to grab 20 pct of Canada equity trading market

* TMX Group shares down 1.4 pct in afternoon (Adds response from TMX Group, fund manager and analyst comment, TMX share price)

By Alastair Sharp and Euan Rocha

TORONTO, June 25 (Reuters) - Canada's largest bank and some of its most influential fund managers plan to set up a new stock exchange to challenge the dominant TMX Group Ltd, one that would limit the role of controversial high-frequency trading strategies.

The new exchange operator, Aequitas Innovations Inc, will be backed by Royal Bank of Canada and other institutions not involved in the 2012 takeover of TMX, which operates the Toronto Stock Exchange.

Its founders said on Tuesday that the new exchange, expected to launch in late 2014, will cater to retail and institutional investors who they believe have been short-changed by predatory high-frequency trading practices.   Continued...