A fledgling Canadian ATS is looking to rock the exchange-pricing boat with a radical new fee schedule beginning next month. Omega ATS, currently Canada’s smallest displayed market, hopes to gain traction against a field long dominated by the Toronto Stock Exchange.
Only earlier this year did competition begin making headway against the TSX, which still has a lock on 90 percent of the market. Omega launched in December 2007 and is one of Canada’s four displayed-market ATSs.
Starting next month, Omega will execute all transactions for 7 cents apiece. In lieu of the customary per-share pricing, the ATS will charge liquidity takers a flat fee per order, whether it’s 100 shares or 10,000. The liquidity provider will get no rebate. Omega currently charges takers a 25-cent fee per 100 shares and gives liquidity providers a 24-cent credit for stocks at $1 or more.
“What we bring is a low-cost alternative model,” said Greg King, chief operating officer of Omega. “Other marketplaces in Canada have significant payrolls and infrastructures to support their trading. Our message is that trade matching is a black box now. Electronic order matching is a commodity.”
Market centers comparable to ECNs in the U.S. have cropped up in Canada over the last 18 months in response to regulatory changes designed to boost competition. Later this year, the Canadian Securities Administrators, the nation’s team of provincial regulators, is expected to adopt a trade-through rule. More flow would thus go to smaller venues if they have the best prices. (Canada’s trade-through rule, unlike the U.S.’s, will protect the full depth of book, rather than just the top of book at each displayed market.)
In value traded, the Toronto exchange represented 90.6 percent of the market in the first quarter of this year. Chi-X Canada and dealer-owned Alpha Trading Systems, in the best showing yet of these two ATSs, captured more than 3 percent apiece.
The TSX has maker-taker pricing. For stocks $1 and over, it charges its biggest customers 33 cents per 100 shares and credits liquidity providers 31 cents. For stocks under $1, the best pricing is a 6-cent take fee and 3-cent credit. Other customers have wider fee-rebate spreads.
Omega has less than 0.5 percent of the domestic market share, but hopes its new pricing will attract flow and improve its prospects. The pricing applies to all stocks, including stocks under $1.
“It is almost a backward approach,” said James Kang, an analyst at research firm Aite Group. “Rebates are designed to entice liquidity providers, but in this case, Omega is targeting the liquidity takers and making Omega an execution venue where the takers gather, [and therefore] a place the providers will want to be.” He added: “Whether this is a good move has yet to be seen.”
Omega’s King says that focusing on rebate-seekers by providing high credits is misguided. “The U.S. markets are liquid and can support that. … Here, brokers just want liquidity,” he said.
When Omega launched, it had four subscribers. It now has 50 out of a core universe of about 100, King said.
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