(Bloomberg) — TMX Group Ltd., the operator of Canadas largest stock exchange, announced a plan to slow down high-frequency traders and simplify the nations equity markets.
TMX will introduce minimum order sizes for brokers and a speed bump on its Alpha Exchange from next June. The exchange operator will add a so-called long-life order type to both the Toronto Stock Exchange and the TSX Venture Exchange in the fourth quarter of 2015. These orders will have a minimum resting time, and in return they will get priority over other orders at the same price.
Weve been listening to our customers and the challenges theyre facing in the market, Kevan Cowan, president of TSX Markets and group head of equities at TMX, said in a phone interview. The market is getting increasingly complex and we want to simplify that. If we see flow migrating to the United States thats not good for Canadian equity markets.
The decision comes as the Toronto-based exchange faces the prospect of competition from Aequitas Innovations Inc., which is trying to open a Canadian stock market that blunts what it views as unfair advantages enjoyed by high-frequency trading firms. Regulators have yet to give their blessing for Aequitas to open after rejecting the firms initial application.
See Also:TMX Hires Ex-S&P Executive Eccleston as CEO
The shares of TMX rose 0.2 percent to C$53.39 at 1:08 p.m. in Toronto. The stock has advanced 4.6 percent this year, less than the 7.1 percent rally in the Standard & Poors/TSX Financials Index.
TMXs four trading venues had a combined market share by volume of 74 percent in the third quarter, according to the Investment Industry Regulatory Organization of Canada. That compares with an 83 percent share in the fourth quarter of 2012 when it acquired Alpha, IIROCs data show.
Flash Boys
HFT firms employ strategies that make a profit from acting faster than conventional traders, an issue that entered the popular consciousness after the publication of Michael Lewiss book Flash Boys earlier this year.
Brad Katsuyama, a former Royal Bank of Canada trader and the protagonist of the book, founded IEX Group Inc. in the U.S. as an alternative venue intended to eliminate the advantages purportedly available to high-speed traders in the wider market.
Aequitas, which is owned by a group including Royal Bank, Barclays Plc and Canadas Public Sector Pension Investment Board, markets its new venue as friendly to humans. Jos Schmitt, Chief Executive Officer at Toronto-based Aequitas, said the changes from TMX clearly acknowledge the issues with the Canadian equities market we have been raising.
TMX Competition
Cowan said that while competition had contributed to TMXs decision, its focus was on improving trading for all types of investors.
People should be very careful about claiming ownership over any of these ideas, Cowan said. We want to keep trades in Canada. Its a growing threat to the market, not just for us.
TMX will shut its TMX Select trading system in June after customers said the company operated too many markets, Cowan said. The platform accounted for 2.1 percent of volume traded in Canada in the third quarter of 2014, according to IIROC.
The proposed changes require regulatory approval, including a period for public comment, TMX said.
Chief Executive Officer Tom Kloet retires at the end of October. S&P Dow Jones Indices ex-chairman Lou Eccleston replaces him on Nov. 3.
