Group Co.
The Truth Behind the Closing Price
Traders Magazine Online News, December 21, 2018
Historical Canadian market structure policy and convention has failed to address today’s reality: there are multiple markets in Canada that can and do trade the same public company or fund even when they are listed on the TSX. Each market has a unique focus and creates Canadian capital markets choice for different stakeholders. Consider this sampling of frequently trading funds. The November trading volumes for these products are fragmented across the TSX, NEO, and other markets in Canada.
As trading continues to fragment across multiple markets, a common trend has emerged: significant trading occurs off the home listing exchange. This is particularly common with ETFs and can often lead to the incorrect perception of illiquidity. Why? Investors and advisors have the view that liquidity in ETFs is defined by volume traded when in fact it isn’t; the underlying security’s volume is far more important. This is further challenged because the complete, consolidated picture of all trading information is not available publicly. A consolidated quote with volume across all markets is not available to investors and investment advisors. Unable to see the full picture, investors jump to the conclusions that certain securities are infrequently traded.
The issue is further compounded as investor portfolios for both do-it-yourself investors using a discount broker channel, as well as those with Financial Advisors are updated based only on trading activity from the listing market. Securities can often appear stale by days or even weeks, while trading continues on other market places. Again, this problem is particularly prevalent in ETFs. The stale “closing price” results in an inaccurate representation of the value of the underlying holdings.
Without a doubt, the lack of consolidated data causes headaches for investors, advisors, and issuers alike. With no sign of a relatively simple regulatory solution similar to what is available in the US – mandated access to consolidated market data – we need to find other solutions.
At NEO, we have an “investor first” mandate. It is through this lens that we proposed and implemented a simple solution that ensures the published closing price of a security will reflect a complete, consolidated price.
We are dedicated to building healthier capital markets for all investors. We identified a problem, consulted with industry stakeholders, proposed and executed upon a solution. This improves the overall investment experience for Canadian investors, and we hope other exchanges in the industry will follow. This is how we do things at NEO.
Want to learn more?
For those interested in gaining a thorough understanding of how NEO publishes closing prices for our listed issuers, keep reading:
What’s the problem?
ETFs are a Canadian born phenomenon and they’ve grown substantially in popularity. However, the infrastructure and policies that support the industry have not evolved to keep up.
In short: the closing price publication mechanism in Canada does not acknowledge or consider a multiple marketplace environment where trading activity can happen in multiple places.
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