Canadian Market Structure Parsed

Terry Flanagan

With an effective regulatory regime and comparatively low representation of the high-frequency trading and dark pools that cause consternation in the U.S. and Europe, Canada’s institutional market structure is seen as leading-edge.

This leadership can continue, but there are challenges, said panelists at Markets Media’s Canadian Trading Network, held Sept. 4 in Toronto.

Doug Clark, managing director of research at ITG Canada, said the small size of Canada’s market makes it easier to maintain a sound market structure, and another help is that its financial regulators aren’t influenced by politics as they are elsewhere.

However, Clark noted a challenge in the form of “increasing regulatory creep” from across borders. In an increasingly globalized marketplace, regulations such as the so-called Volcker rule in the U.S. and commission rules in the U.K. have made their presence felt in Canada.

Canada’s equity market structure is viewed as a model by some, but its market structure for multiple asset classes is less advanced, noted Wendy Rudd, senior vice president of market regulation and policy at the Investment Industry Regulatory Organization of Canada.

The Ontario Securities Commission is focused on fair pricing for market participants, said Tracey Stern, manager of market regulation for the OSC.

In the evolving multi-asset-class, global market structure, “there needs to be a focus on transparency — not just in pricing, but also in how everything is done,” said Jos Schmitt, chief executive of Aequitas Innovations.

As seems to be happening in the U.S., Europe and Asia, Canada’s equity market is receiving more than its share of attention. “We are micro-regulating in the equity market,” said Schmitt. “I am a fan of moving back to more principles-based regulation.”

Rudd of IIROC responded that principles-based regulation can work, but “it leaves lots of room for interpretation.”

Robert Young, head of Liquidnet Canada, kicked off the multi-asset-class-themed panel by noting the recent news that ITG would launch a trading venue for fixed income to compete with offerings from Liquidnet and others.

Feature image via Dollar Photo Club

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