TORONTO Jan 16 Canadian upstart stock exchange
applicant Aequitas Innovations Inc has tweaked its proposed
trading model after its initial plan was rebuffed by Ontario's
securities regulator, the company and the regulator said on
The Ontario Securities Commission (OSC) revealed on Thursday
it had blocked Aequitas' initial proposal because it restricted
access to visible orders, which breaks OSC rules ensuring fair
Aequitas is aiming to break the dominant grip of Toronto
Stock Exchange operator TMX Group with a model that
limits controversial high-frequency trading (HFT) strategies.
It plans to offer so-called lit and dark markets, as well as
a hybrid market combining features of each.
In a dark market institutional investors can trade in large
volumes without tipping their hand about pricing by not
displaying their orders. More typical and traditional lit
markets offer price discovery via bid and ask quotes.
The prospective exchange operator said on Thursday that in
response to the OSC decision it would instead make HFT
uneconomical via fees and speed-bumps, rather than restrict
High-frequency traders use sophisticated algorithms to trade
thousands of shares in a millisecond with the aim of earning a
profit from market making and price imbalances. But many
players, including some large fund managers, have criticized
their impact on markets.
The OSC will seek comment on the amended proposal as part of
Aequitas' application for recognition as an exchange, which
Aequitas plans to submit in the current quarter. The exchange
operator had originally planned to launch by the end of this
year, but now hopes to roll out its service in the first half of
Aequitas has previously said it would shy away from a
now-common fee structure in which one side of a trade - often an
algorithmic trader - receives a rebate for placing an order.
Exchanges often cover this cost with higher fees on the other
side of the trade, in many cases retail or institutional
Aequitas is backed by Royal Bank of Canada, Barclays
Plc, pension fund OMERS Capital Markets, mutual fund
managers CI Financial Corp and IGM Financial Inc
, telecom company BCE Inc and others.
TMX is controlled by a consortium of Canadian banks and
other financial institutions that thwarted a takeover bid by
London Stock Exchange Group. The consortium, known as
Maple Group, then combined the Canadian exchange operator with
the smaller Alpha exchange and a trading clearinghouse.
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 its bid.