TMX Reduces Maker-Taker Fees

Terry Flanagan

TMX Group is reducing maker‐taker fees as part of a continuing effort to help re‐shape Canada’s equities trading environment in light of regulatory changes in Canada and in the U.S. The exchange operator is implementing a measured rate-reduction program for Toronto Stock Exchange, TSX Venture Exchange and TSX Alpha Exchange.

“We’ve taken some pretty significant leadership steps on the whole maker-taker fee model debate,” said Kevan Cowan, president of TSX Markets, and group head of equities for TMX. “What we’re doing is moving down our maker-taker rates across the whole spectrum of our different marketplaces and symbol sets. We have put the maker-taker reductions in place in a different way for Canadian-listed versus interlisted, in light of the fact that we have a lot of cross-border issues to keep in mind.”

Maker-taker rebates have figured prominently in the ongoing debate on market structure. Canadian regulators are mulling whether to impose a minimum market share size of 5% for trading venues to be afforded trade-through protection, which is similar to a proposal put forward by Bats Global Markets in the U.S. The idea is controversial, because it could be viewed as stifling competition for established exchanges.

The maker-taker model was introduced to Canada more than a decade ago to increase trading liquidity, tighten price spreads and increase the competitiveness of the Canadian capital markets. However, over time, market structure has evolved and the model has raised concerns about market efficiency, fairness and quality.

“It’s very much a part of the debate around latency sensitive traders, high-frequency players and that kind of thing,” Cowan said. “Our focus, first and foremost, is customers. Secondly, of course, is the competitive landscape and what’s happening both north and south of the border. The third thing is the regulatory environment.”

TMX is introducing a program of phased reductions in maker‐taker rates designed to gradually lower dealer active trading costs, minimize unnecessary intermediation and increase investor confidence. This approach provides the ability to carefully monitor and actively manage the market impact of the changes, the company said.

The reductions will differentiate between fees for interlisted and non‐interlisted securities to maintain the competitiveness of the Canadian market relative to the U.S. market. Taker fees will be reduced up to 34% with an average reduction of 26% across all securities and participants, while maker rebates will be reduced by an average of 31%.

Subsequent phases of the program will be implemented in 6‐9 month intervals over the next 18‐24 months. Future rate adjustments will be determined based on data‐driven research, detailed impact analysis and client feedback to ensure that any unintended consequences are addressed.

Cowan said that the repositioning of the Alpha marketplace to replicate as near as possible the economics of payment for order flow is scheduled for Sept. 14. “We are looking very much to improve the economics for traditional traders who otherwise might look to be sending their flow across the border,” he said. “We’re doing 3 significant things at the Alpha marketplace. First, we’re inverting the fee model so that rather than maker-taker, it’ll be taker-maker, so we will pay the more traditional player who’s on the active side of the book. Second, we’re putting in place a minimum size requirement, and third, we’re utilizing a speed bump to enhance the opportunity for traditional players to interact with electronic liquidity providers.”

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