Canada's TMX plans options to curb high-speed trading
The company also wants to introduce a "long life" order type on both its main Toronto Stock Exchange and its sister venture exchange which will be executed ahead of other orders at the same price, to limit fleeting liquidity by rewarding those who commit their orders to the book for roughly a second.
The TMX moves follow the recent upgrade of its main trading platform to offer ultra-fast transaction speeds, which mostly benefits traders who use algorithms to make rapid-fire trades.
The premise for the Alpha move is that active institutional and retail investors value certainty over speed, and will choose to trade there rather than bundle and sell their orders to a trader down south, where payment for such flow is permitted.
"We're looking at a competitive landscape that goes cross-border and our number one competitive issue that we're dealing with here is the potential migration of Canadian trading flow to the United States," Kevan Cowan, head of the equities group at TMX, said in an interview.
He said high-speed traders who remove liquidity from an order book likely won't be fans of the move, but that those who add liquidity would relish the interaction with other investors.
But others weren't convinced that slower institutional investors would move en masse to Alpha, which faces dwindling market share, if the changes take effect.
"It's very difficult for a shrinking marketplace to attract liquidity through a technology gimmick or new policy that tries to attract a specific segment of a trading community," said Sang Lee, a managing partner at Aite Group.
The TSX, which boasted a market share of over 95 percent in 2007, has seen that share fall to just over 50 percent of trade volumes as of last month. And Alpha, a rival exchange it bought a few years ago, has seen its market share drop to below the 10 percent mark from over 20 percent in late 2009, according to Thomson Reuters trading data.
TMX said it plans to introduce the changes in June 2015. At that time it will also close its TMX Select marketplace and Alpha's IntraSpread dark pool facility.
Meanwhile, Aequitas Innovations Inc is hoping to win regulatory approval this year for a trading exchange designed to curb predatory trading strategies. It plans to launch its rival service early in 2015.
"Aequitas is pleased to see our presence instigating positive change to the benefit of the long-term investor," Aequitas CEO Jos Schmitt said in response to the TMX news.