August 19, 2009 / 7:31 PM / 9 years ago

TMX market share slips as rivals gain footing

* TMX market share sags to 85 pct in July

* Down 13 percentage points from year-ago level

* Competition prompts changes in pricing

By Jennifer Kwan

TORONTO, Aug 19 (Reuters) - Market share for stock exchange operator TMX Group Inc (X.TO) slipped in July as smaller rivals managed to further erode its dominance over the Canadian equity trading landscape.

Combined market share for the senior Toronto Stock Exchange and junior TSX Venture Exchange dipped to around 85 percent last month, according to recently released figures by the Investment Industry Regulatory Organization of Canada. That’s down from a little over 94 percent at the start of the year and 98 percent a year ago.

The recent changes in market share can, in part, be pegged to a fight to woo highly active electronic traders, prompting competitors like Alpha Group to announce fee changes in July targeting those traders, said Gabriel Dechaine, analyst at Genuity Capital Markets.

“My suspicion is we’ve had a lot more high frequency trading activity on Alpha,” Dechaine said.

A type of high frequency trader, electronic liquidity providers (ELPs) use a trading strategy that targets rebates for offering so-called passive liquidity. Their presence is relatively new in the Canadian market place.

Alpha’s fee changes took effect on Aug. 1.

In January, TMX put in place a new fee model, with a focus on attracting these types of high-volume players. The program proved to be successful, maybe even too successful, as it essentially resulted in lowering its average revenue per trade, analysts said.

Late last week, TMX announced further changes to its pricing model, including a fee reduction for a type of order for stocks trading at less than C$1, while also adjusting its ELP program. Those changes take effect Oct. 1.

The price wars and increased competition are part of Canada’s quickly changing equity trading landscape, which has seen TMX’s market share fall by 13 percentage points since last July.

“It wasn’t expected that they were going to hold on to 98 percent market share,” said Dechaine.

TMX has aggressively adjusted fees, improved technology and diversified its business, particularly in the market data and derivatives space, to fend off competitors. TMX also operates the Montreal Exchange derivatives market.

At end July, Alpha’s market share was at just over 9 percent, while Chi-X commanded 2.7 percent and Pure Trading was 1.5 percent. (Reporting by Jennifer Kwan; editing by Rob Wilson)

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