By Alastair Sharp
TORONTO, Aug 13 (Reuters) – Ontario’s securities regulator
is seeking opinions on a prospective exchange operator’s radical
proposals about market trades and will mull whether to amend
rules governing Canadian markets to accommodate the newcomer.
The new entrant, Aequitas Innovations Inc, aims to break the
dominant grip of Toronto Stock Exchange operator TMX Group
on Canadian equity trading with innovative structures
that it says will improve the overall quality of trading.
Aequitas is backed by Royal Bank of Canada and other
big investors and has yet to file for an operating license. It
has, however, filed a patent for its hybrid lit-dark order book.
The hybrid combines aspects of a dark market, where
institutional investors can trade in large volumes without
tipping their hand about pricing, with a more typical lit market
that offers price discovery via bid and ask quotes.
The Ontario Securities Commission, Canada’s main regulator,
has rules for both types of markets. It does not have a rule
book for a market place that combines them, leading to Tuesday’s
consultations, which have a Sept. 27 deadline.
The OSC also wants market participants to comment on whether
Aequitas should be able to offer priority in trade execution to
market makers and add market makers not accredited with the
Investment Industry Regulatory Organization of Canada, Canada’s
main self-regulatory body.
“It is an enduring objective of the OSC’s work in this area
that markets remain fair and participants have confidence in
market quality and integrity, including order entry, execution
and settlement processes,” the regulator said in the request for
comment posted on its website.
Aequitas said it was eager to hear the views of the
investing community during the 45-day consultation process,
which opened before Aequitas has even filed an application for
recognition as an exchange.
“We are extremely happy that they are actively participating
in the dialogue that we initiated,” Aequitas’ chief executive,
Jos Schmitt, told Reuters. “When I look at the objectives that
the regulations seek to achieve and I look at what we seek to
achieve, I think we are tremendously aligned.”
Aequitas would be a direct competitor to TMX, which handles
roughly 80 percent of equity trading by value in Canada.
Aequitas on Tuesday added telecom blue-chip BCE Inc
and pension fund OMERS Capital Markets to a list of founding
investors. That list includes Barclays Plc, Canadian
mutual fund managers CI Financial Corp and IGM
Financial Inc, pension fund PSP Public Markets, and
Investment Technology Group Inc as well as RBC.
TMX is controlled by a consortium of Canadian banks and
other financial institutions. RBC, the country’s biggest lender,
was one of the few Canadian banks not involved in the
consortium, as it had advised the London Stock Exchange on an
unsuccessful bid for TMX.
