Omega’s Lynx Awaits Pricing Approval

Terry Flanagan

Omega Securities is awaiting regulatory approval of a new pricing model for its Lynx ATS that will enable it to adjust prices dynamically based on the trading volumes for each name.

Omega launched Lynx on February 3. The marketplace is using an interim maker/taker pricing model while it seeks regulatory approval for the dynamic pricing model.

“Regulators are doing their due diligence,” said Sean Debotte, president and CEO of Omega Securities. “We are awaiting a decision. We are optimistic that it provides a real value-added to the Street to be able to reduce the costs for maker taker across the board.”

Lynx’s market share has been a tiny 0.3% since it launched, but Debotte says that is in line with expectations. “We’re happy with slow and steady growth. The business model for Lynx is that it’s the first pay-as-you-go venue. We feel that model will attract more participants as they realize its value. It’s great to see so many Canadians embracing the destination.”

Lynx is designed to compete more directly with other maker-taker books that cater more to the buy side. Omega’s plan is to compete more directly with these venues as well as retain its niche space with Omega ATS.

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.

Omega ATS employs an inverted taker-maker model that charges a fee for posting liquidity and pays a rebate for taking liquidity. “The idea of the taker-maker model is that cost-sensitive participants will be attracted to the venue by receiving a rebate for active flow,” said Debotte. “A lot of broker-dealers are cost sensitive because of their own business model, where they have flat rate trades. They don’t have a lot of control over the flow that produces, but they do have control over where they send that flow. The inverted model is attractive to the discount dealers; it helps them curb their fixed costs and exchange fees”

Trading venues such as Omega are assessing regulatory developments, such as the Ontario Securities Commission’s announcement that it will review the Order Protection Rule. Canada has also proposed a single national regulator, an idea that has been discussed for years.

Last September, the ministers of finance of British Columbia, Ontario and Canada agreed to establish a cooperative capital markets regulatory system and invited ministers responsible for securities regulation in all provinces and territories to participate.

“A cooperative securities regulator based in Toronto will provide increased protection for investors, strengthen the competitiveness of Canada’s economy, lower costs and enhance the reputation of Canada’s financial services sector leading to more jobs and growth,” said Charles Sousa, Ontario Minister of Finance, at the time of the announcement.

Debotte cast doubt that a single securities regulator is needed, however. “I don’t think that a single regulator would be best equipped to deal with the subtle differences between provinces in Canada. Vancouver and Alberta, for example, are still very venture-heavy, with a lot of mining, oil and gas exploration. One blanket regulator and one set of rules for all provinces couldn’t address these individual differences.”

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