Canadian fund managers and banks plot new stock exchange

City A.M. Reporter
CANADA’S largest bank and some of its most influential fund managers plan to set up a new stock exchange to challenge the dominant TMX Group, one that would limit the role of controversial high-frequency trading strategies.

The new exchange operator, Aequitas Innovations, will be backed by Royal Bank of Canada and other institutions not involved in the 2012 takeover of TMX, which operates the Toronto Stock Exchange.

Its founders said yesterday that the new exchange, expected to launch in late 2014, will cater to retail and institutional investors who they believe have been short-changed by predatory high-frequency trading practices.

Once launched, Aequitas would be a direct competitor to the TMX Group, which also operates Canada’s main small-cap and derivatives exchanges. TMX handles roughly 80 per cent of equity trading by value in Canada.

The exchange operator said high- frequency trading makes up around 15 per cent of its volume. High-frequency traders use sophisticated algorithms to trade thousands of shares in a millisecond with the aim of earning a profit from market making and price imbalances.