01.27.2014
By Terry Flanagan

Omega Proposes Dynamic Pricing Model

Omega Securities, operator of the Omega ATS, will launch its second ATS, called Lynx, on February 3. The marketplace will deploy an interim maker/taker pricing model at first, but Omega is seeking regulatory approval for a dynamic pricing model unlike other fee schedules currently offered in Canada.

Sean Debotte, who has been appointed president and CEO of Omega Securities, said that Lynx will employ many of the features already offered in Omega ATS, such as new order types and a fast matching engine.

“Lynx is our second trading book,” he said. “Omega has always been a bit of a niche strategy, addressing only a small portion of the market that not too many ATS were catering to. Lynx is designed to compete more directly with the other maker-taker books that cater more to the buy side. Our plan is to compete more directly with these venues as well as retain our niche space as Omega. We’re offering a similar service at basically no cost, as there are no subscriber fees or market data fees.”

Sean Debotte, Omega ATS

Sean Debotte, Omega ATS

Lynx ATS will be the first “pay as you trade” venue in the country with no market data or subscription fees, and no connectivity fees, according to the company. All order entry and market data protocols will be the same as Omega ATS with the same price-time matching priority. Other than pricing, the only other distinct difference between the two marketplaces will be that broker attribution will be the default.

“Although the standard maker/taker pricing model is quite popular in Canada, we felt that there is a problem in the way intermediary market makers are remunerated for providing liquidity,” Debotte said. “The rebate structure is designed to incent participants to close spreads and thereby reduce overall trading costs. However, there is discrimination between the rebate paid on highly liquid symbols that often trade at the minimum tick spread and lower volume securities that typically trade wider.”

Under the dynamic pricing model proposed for Lynx, Omega will create several pricing tiers based on the average daily trading volume of a given security during the previous month. Once calculated, a list of all securities eligible for Lynx’s lower passive/active tiers will be distributed to all subscribers, vendors, and trading participants.

“This will allow for the least amount of updates and can be an automated process,” the company said in a regulatory filing. “Lynx ATS is encouraging this to be automated so that there should be little to no costs to maintain these changes.”

Canadian trading venues that offer standard maker/taker models handle roughly 85% of all volume traded. By contrast, more exotic schedules such as the inverted pricing offered by Omega ATS make up the difference. Lynx ATS’s proposed dynamic pricing is still under regulatory review and, pending approval, may be implemented as early as the first trading day of April 2014.

“We think the dynamic pricing model offers a benefit to all trading participants,” Debotte said, “and that benefit could have a major impact on overall market structure in Canada, and we hope that the regulators after conducting their due diligence will approve this new pricing model.”

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