The Canadian equities markets remain safe from the scourge of fragmentation despite the addition of another marketplace.
There are no adverse effects for equity marts in the Great North despite the recent launch of the Chi-X 2 venue. That’s the findings of a new study released today by the Capital Markets Cooperative Research Centre (CMCRC), a consultancy that examines and comments on Canadian market quality and structure.
Using CMCRC developed technology that analyzed Big Data a number of metrics reflecting market efficiency and fairness were examined, including market share, trade size, depth of liquidity, effective spread, price impact, information leakage and end of day dislocation, the research concluded that the new market has added diversity without detracting from the key markers of market quality.
Michael Aitken, CMCRC CEO, said that looking at these metrics side-by-side with other Canadian markets showed that Chi-X 2 hadn’t adversely impacted the quality of the Canadian marketplace.
“Our analysis demonstrates Chi-X 2’s market share (3-5%) does not appear to have come at the expense of overall Canadian market quality,” Aitken said. “While the market share of TMX Select and Omega were reduced by around 1% each, this hasn’t negatively affected any of the efficiency or fairness metrics we typically use to assess market quality.”
Chi-X 2’s fee structure employs “taker-maker” pricing which rewards liquidity takers as opposed to liquidity providers, contrary to mechanisms in place in most other markets. Chi-x 2 undertook this initiative to attract retail investors and small- to mid- tier brokers to its trading platform. Chi-X 2 jumped over its immediate competitors providing liquidity 30% of the time at the NBBO., CMCRC noted.
“What needs to be examined is how specific market design changes impact specific metrics representing fairness and efficiency,” Aitken said. “Comparing these metrics across markets enables one to compare apples with apples to address the universal mandate of regulators of ensuring that market design and changes thereto pass the dual tests of fairness and efficiency.”
The CMCRC is a global research organization that provides thought leadership and technology solutions for capital and health markets. It is funded equally by the Australian Government, an alliance of academic partners and industry partners including regulators, exchanges and market participants across 10 countries. Research is funded from pooled funding and not sponsored by individuals, companies or institutions.
