09.01.2011
By Terry Flanagan

TMX Boosts Networking Capacity

The expanded number of trading venues packed into a very small area within downtown Toronto has made low-latency networking a key differentiator, and one of the principal motivations behind TMX Group’s recent acquisition of Atrium Network a provider of high availability, cost effective, low latency network solutions in Europe and North America.

“All of the ATS matching engines—Chi-X Canada, Alpha, Pure, Omega—are within a square mile of each other,” Emmanuel Carjat, CEO of Atrium Network, told Markets Media. “The presence of so much competition within a very small footprint creates an opportunity for a company like ours to provide the fiber to connect those venues to each other and to other venues.”

Atrium Network, which will be rebranded TMX Atrium, will operate as a unit of TMX Datalinx, TMX Group’s information services division.

Both Atrium Network and TMX Datalinx provide capital markets data and connectivity solutions to the global financial services community. Atrium Network’s existing North American, European and trans-Atlantic connectivity platform covers the service areas that TMX Datalinx planned to build out over the next five years with its TMXnet network.

Atrium Network extends TMX’s connectivity solutions into Europe and expands its U.S. presence significantly. The combined network will offer 25 points of presence in 11 countries, 24 trading venues and 300 data sources.

In early 2011, TMX Datalinx introduced TMXnet, and in June 2011, the TMXnet network was expanded into key U.S. financial centers.

“The successful integration of the Atrium network business will be a key priority,” TMX Chief Executive Officer Thomas Kloet said during an earnings conference call earlier this month. “Also important will be our work to firmly establish TMX Select in the Canadian capital markets.”

TMX Group has launched dark order types and is launching TMX Select, an ATS. Alpha Group has launched its IntraSpread dark pool this summer; IntraSpread will function as a flow-through dark pool, with multiple price-improvement points.

Goldman Sachs’ Sigma X Canada implements a smart-order router designed to simplify trading in the Canadian marketplace where competing market venues have fragmented liquidity. Orders directed to Sigma X Canada will interact with other orders resting in the order book as well as orders passing through the ATS on the way to the public markets via the Goldman Sachs Execution and Clearing (GSEC) SOR for Canadian markets.

The SOR leverages technology to consolidate access to all Canadian pools of liquidity for Canadian TSX-listed securities. Only participants who are also clients of GSEC will be able to access Sigma X Canada using the SOR.

Demand for low-latency connectivity is surging due to an increased reliance on algorithmic trading and smart-order routing.

“Suppose you’re an arbitrage firm participating in the Toronto market,” Carjat said. “You will trade stocks across various ATSs in order to take advantage of hedging opportunities. That is happening over extremely short distances, so latency is key.”

Regulators are cognizant of the impact of ATSs. The Canadian Securities Administrators (CSA) and Investment Industry Regulatory Associations of Canada (IIROC) have jointly issued proposals for pre-trade transparency, including a minimum size threshold, price improvement for orders executed on a dark pool against orders on a displayed market, and priority of execution for visible orders over dark orders at the same price on the same marketplace.

In effect, regulators are recognizing that algos and SORs have developed to the point that multiple ATSs can thrive, said Carjat.

“Fragmentation is here to stay, and technology will enable firms to navigate that” he said. “Previously, you couldn’t spread a 100,000 share order because you couldn’t find a broker who would spend a day working that order, but algo technology makes that possible.”

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