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January 30, 2008

ECN Puts Canadian Spreads on a Diet

By James Ramage

Spreads are too wide in Canada, according to one broker, so there's money to be made from them. Perimeter Financial introduced a new ECN-like maker-taker marketplace there to help traders access them. The Toronto-based Perimeter launched Omega ATS to attract those hoping to narrow spreads for inter-listed securities-those Canadian stocks that are listed and trade in both the U.S. and Canada.

The plan echoes the U.S. Nasdaq market's past. Overly wide spreads were a problem in the mid-'90s because of the actions of Nasdaq dealers. In Canada, their specialist equivalents-called registered traders-are expected to keep bid-offer spreads wide. Enter Perimeter's Omega ATS.

"We saw an opportunity to allow people who wanted to narrow the bid-ask spread for business-and there are lots of those guys in the U.S.-to come up to the Canadian market and do the same thing here," Doug Steiner, Perimeter's chief executive, says. Omega ATS is the first ECN-type marketplace in Canada: Pure Trading, also in Toronto, offers a similar maker-taker model.

Omega supports securities listed on both the Toronto Stock Exchange and a U.S. exchange, and lets its customers trade at the Canadian best bid and offer. By the end of the month, Steiner says, it will support the full set of inter-listed symbols-just under 300.

Omega will use a liquidity rebate in Canada that is significantly above the liquidity taker fee in the U.S. to lure those interested in arbitraging maker-taker rates in the U.S. and Canada, according to Steiner.

"There's a big business in people making sure that, given wherever the foreign exchange is, they can buy on one marketplace and sell on another and make a little bit of money," he says.


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