Canadian Regulators Ramp Up Market Review

Terry Flanagan

Canada’s equity marketplace has evolved significantly in the last few years, and regulators have been trying to keep pace with new rules such as those for dark pools, enacted in 2012, that mandate that venues with nondisplayed liquidity provide mandatory price improvement for orders executed against prices posted by displayed venues.

“The Canadian marketplace has taken a unique view, and made some choices that are different from other markets, particularly the United States,” said Kevan Cowan, president of TSX Markets and group head of equities, TMX Group. “Over the last year, there was a lot of interest in the United States about what we’ve done differently in Canada. For example, the dark rules in Canada are very different than the United States. The Order Protection Rule plays a key part in that as well.”

Canadian regulators have said they will review Canadian market structure, including the Order Protection Rule, during 2014.

“The continuing theme in Canada for the past 15 years has been to place a higher priority on central visible marketplaces, and transparent and quality price discovery,” Cowan said. “So I expect any decision taken by Canadian regulators will be in keeping with that unique path that Canada has followed.”

Cowan added that he was pleased with the dialogue and public debate in Canada, which he attributes to evidence-based rulemaking. “Regulators are spending more time analyzing market data, and building the tools that equip them to analyze market data, so we can have public policy decisions that are grounded in fundamental analysis,” he said. “The review of market structure and the order protection rule is a great example of evidence-based rulemaking. It helps define issues so people know with transparency what we are debating and what we can do that’s best for the Canadian markets.”

Separately, TMX Group has reached a milestone in the phased launch of its new high performance trading engine, TMX Quantum XA. Customers are able to connect to the new trading platform in a test environment and participate in simulated order entry sessions in preparation for the migration of Toronto Stock Exchange symbols, planned for June 2014.

“We’ve excited to be launching the next generation of technology on our main market, the TSX. We launched it on our ATS, Select, last summer,” said Cowan. “We have seen tremendous performance there. Technology has played such a significant role in the evolution of exchanges in the last several years.”

On the TMX Select market, Quantum XA achieves a median latency of 26 microseconds and a 99th percentile latency of 38 microseconds across the full production day, measured at the network edge.

“Our technology team is very excited to begin testing TMX Quantum XA with our Toronto Stock Exchange customers as we move closer to full migration across our remaining equity markets,” said Brenda Hoffman, chief information officer and group head of technology, TMX Group. “The TMX Quantum XA platform represents a step change in performance and efficiency in Canadian capital markets and sets a new cutting-edge standard for exchange technology.”

Added Cowan, “As we look at the landscape of latency performance by exchanges around the world, this is at the leading edge. We had this on Select, and we were seeing performance at the 99th percentile at 38 microseconds. In today’s world, latency and certainty of latency are very important. People often talk about jitter or the variation that a customer experiences in terms of latency. With Quantum, there is consistency of performance. Quantum XA is the foundation of our trading platform.”

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