Canadian Market Structure Changes Ahead

Terry Flanagan

Canadian regualtors have been busy this year on market structure issues, and the next year could even be busier.

“2015 could be the year of the good, bad and ugly for market structure,” Torstein Braaten, CEO of TriAct Canada Marketplace, told Markets Media.

TriAct’s MATCH Now is currently the fourth largest trading venue in Canada, with a 59% share of trading volume among all Canadian marketplaces offering dark trades.

Under rules that went into effect in Canada on October 15, 2012, operators of alternative trading systems must provide “meaningful” price improvement — defined as one trading increment or half a trading increment for securities with a bid-ask spread of one trading increment — in order to execute trades.

TriAct has proposed platform and infrastructure enhancements to the Ontario Securities Commission and the Investment Industry Regulatory Organization of Canada.

On the platform side, improvements are aimed at trading of ‘odd lots’ and stocks listed in both Canada and the U.S., as well as adding symbols and making matches for large institutional trades available continuously.

Traders will be able to buy and sell all TSX symbols on MATCH Now, including debentures, U.S. dollar-settled preferreds, and convertibles. MATCH Now’s passive book, or ‘liquidity destination’, will upgrade its matching engine from running on a cycle of a few seconds, to continuously.

On the technology side, TriAct has a new market data feed offering public and private data. The ATS operator is also building a means to check for ‘contra’ liquidity. The planned enhancements should bring about increased fill rates, more opportunities for price improvement, and more savings through improved cost of execution.

Canadian securities regulators have proposed amending the Order Protection Rule to make it easier for marketplaces to ignore, or “trade through,” quotes from other marketplaces that failed to meet a minimum volume threshold.

A review of OPR by the Canadian Securities Administrators led it to publish for comment proposed amendments to National Instrument 23-101 Trading Rules on May 15, 2014. The proposed amendments would establish a market share threshold of five per cent, at or above which a marketplace’s displayed orders are protected under OPR. Exchanges that do not meet the threshold will be protected only for their listed securities. The amendments would also mandate specific dealer disclosure relating to best execution policies.

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