OSC Seeks Order Suspending ATSs


ATS trading in Canada has come under regulatory scrutiny.

The Ontario Securities Commission filed an application to issue a temporary order that the “registration of Omega Securities Inc. (“OSI”) be suspended for such period as is specified by the Commission, pursuant to subsection 127(5) and paragraph 1 of subsection 127.

In short, the OSC said that Omega and Lynx had discrepancies in their data feeds, distribution of data and time stamping issues.

In its petition, the OSC listed the following:

“An Order that trading in any securities by OSI cease for such period as is specified by the Commission, pursuant to subsection 127(5) and paragraph 2 of subsection 127(1) of the Act; and that such other Orders as the Commission considers appropriate in the public interest.

The grounds for the actions were described by the OSC as follows:

1. OSI operates two Alternative Trading Systems (“ATSs”): Omega ATS and Lynx ATS.

2. The operations of ATSs such as Omega ATS and Lynx ATS are governed by National Instrument 21-101 (Marketplace Operation) (“NI 21-101”) and its related companion policies.

3. Omega ATS and Lynx ATS may have failed to comply with Parts 7 and 11 of NI 21-101 in four respects:

(i) Inaccurate identification of brokers participating in mid-point peg transactions;

(ii) Time stamp deficiencies;

(iii) Content discrepancies across OSI’s data feeds; and

(iv) Dissemination of data to certain subscribers prior to TMX Information Processor (“TMX IP”).

“While the mid-point peg transaction issue has been corrected by OSI, Omega ATS and Lynx ATS continue to inaccurately record, store, and disseminate information with respect to items 3(ii), 3(iii), and 3(iv), above.

5. As a result of OSI’s failure to comply with NI 21-101, OSI has failed to comply with its obligations pursuant to section 2.1 of the Act to provide “timely, accurate and efficient disclosure of information,” and, as a result, has frustrated the fundamental purposes of the Act.

6. Without timely, accurate and efficient disclosure of information: (i) Regulators are unable to properly protect investors; 3 (ii) Capital markets are prevented from operating in a fair and efficient manner; and (iii) Investors’ confidence in capital markets is negatively affected.

7. Staff’s investigation into this matter is continuing.

8. The order sought by Staff is necessary to protect the public interest in light of the serious and ongoing potential breaches of Ontario securities law being committed by the Respondent.

Chris Nagy, posted on Twitter, “Wow! The Ontario Securities Commission orders Dark Pool operators Omega and Lynx to cease trading. together they represent approximately 5 % of Canadian volumes.”

When contacted by Traders Magazine Wednesday night, Sean Debotte, CEO and President of Lynx ATS said that “due to the nature of the investigation, we will not be commenting at this time.”

He referred all inquiries to the firm’s legal counsel of Stikeman Elliot.

On its website, Lynx posted the following statement:

“Omega Securities to Vigorously Oppose Application for Temporary Order by Staff of the Ontario Securities Commission”

Omega Securities Inc. (“Omega” or “the Company”) today announced it will vigorously oppose a temporary order that is being sought by staff of the Ontario Securities Commission (“OSC”) to suspend the registration of, and cease trading of any securities by, the Company, effective Friday, November 17.

“Omega firmly believes that its trading systems operate with integrity and have offered a valuable service to the market for approximately 10 years, and that its market data is distributed in a fair and orderly fashion,” said Debotte. “None of Omega’s market participants are being disadvantaged or treated unfairly in any way whatsoever.”

Furthermore, Omega/Lynx said it is the Company’s position that its systems have operated, and continue to operate, within the parameters outlined by IIROC, and within the requirements of the Securities Act and National Instrument 21-101. Omega was informed of this proposed temporary order very recently. To date, the Company has been fully cooperating with the OSC in a year-long investigation relating to the capture and dissemination of the date and time of trades on Omega’s two alternative trading systems, Omega ATS and Lynx ATS. The Company is very surprised at the severity of the action sought by the OSC, given the lack of any identified adverse effects to the Canadian capital markets, and in fact the almost certain harm to pricing spreads that would result from the OSC’s proposed course of action. Omega strongly opposes the course of action taken by the OSC, which it believes is very unfair, and intends to vigorously oppose these proceedings.”

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