Canadian Regulation Fees Spark Debate

Terry Flanagan

Regulatory fees recently implemented on Canadian market participants have prompted some initial sticker shock, but traders and trade handlers will adjust over time.

That was the perspective of speakers on a regulatory panel at the TMX Canadian Trading Conference, held in Toronto on Thursday.

Last month, the Investment Industry Regulatory Organization of Canada (IIROC) implemented new fee models for market and dealer regulation that allocates fees based on message traffic and trading activity. The change from the previous system was done to better reflect the evolution of trading activity and by extension the drivers of regulatory costs, IIROC said.

High-frequency traders are paying less in fees than some market participants had expected, while dealers are paying more than expected, according to Sapna Patel, executive director a Morgan Stanley. “We were surprised,” as the impact was “more than expected,” Patel said.

Elizabeth King, head of regulatory affairs at electronic market maker Getco, said it is difficult to assess how the regulatory fees may have changed trading activity especially given the rules were put in place only about six weeks ago.

However, at least anecdotally, some firms “were surprised by the magnitude of fees” largely related to messaging traffic, she said, and those firms can be expected to change their behavior.

IIROC estimated that 85% of regulated firms would pay less in fees under the new system, while 15% of firms would pay more.

The new fees may discourage market participants from trading on smaller venues, Patel said.

Despite some short-term dislocation, panelists didn’t disagree with the rationale behind the new fees. “It’s the cost of regulating activity in a market, which makes sense ultimately,” said Stephen Bain, global equity head of Canadian electronic trading at RBC Capital Markets. “People will adjust.”

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