Schmitt-Led Aequitas Plans Canadian Exchange

Terry Flanagan

Jos Schmitt, the former head of Alpha Trading who stepped down last year after the Canadian alternative trading system was acquired by TMX Group, is back.

Aequitas Innovations, where Schmitt is chief executive, today said it plans to launch a Canadian exchange to compete with TMX, the incumbent exchange whose domestic equity-trading market share is about 80%.

Large, established exchanges such as TMX in Canada and NYSE Euronext and Nasdaq OMX in the U.S. have gained business over the past half-decade or so with the ascendancy of high-frequency trading, a methodology that seeks to make a small profit on a large volume of transactions. The Aequitas exchange would test some market participants’ belief that exchanges have gone too far in welcoming HFTs.

Toronto-based Aequitas is owned by a consortium of large institutional participants in Canadian markets spanning the buy side and sell side, including Barclays, CI Investment, IGM Financial, PSP Public Markets, and Royal Bank of Canada.

“We have been given a clear mandate by our founding investors: to serve the collective interests of investors, issuers and intermediaries, and as a result, the public at large,” Schmitt said in a statement.

Aequitas said its exchange will be innovative and cost-efficient, and it will level the playing field for retail and institutional market participants by protecting against certain high-frequency trading strategies that can increase trading costs and friction.

“Marketplaces in Canada and around the globe are increasingly out of sync with their traditional users as they attract and cater to volume and revenue-generating trading over traditional investors and true market makers,” said Greg Mills, chairman of Aequitas and co-head of global equities at RBC Capital Markets, in a statement.

Alpha, a trading venue owned by large Canadian banks, launched in 2008 to challenge TMX, which had been a monopoly operator before regulatory and technological shifts set the stage for competition in the sector. The ATS captured market share of about 20% and was moving to become an exchange when it was bought by TMX.

Aequitas said it plans to formally file an application to become an exchange “towards the end of 2013,” and then a regulatory review will commence. Until then, the company will hold dialogues with investors, brokers and regulators.

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