In a bid to keep Canadian securities markets in step with the evolving U.S. trading landscape, regulators are adopting reforms that will reduce the cap on trading fees for inter-listed stocks.
On Thursday, the Canadian Securities Administrators (CSA) announced the implementation of rule changes that will lower the maximum fee that can be levied on trades in inter-listed stocks, resulting in a reduction of the active trading fee cap from the current 0.3¢ per share to 0.17¢ per share for stocks priced at C$1 or more.
The change, which is intended to align Canadian market practices with the U.S. market when dealing in inter-listed securities, is smaller than originally proposed.
The CSA had previously planned to reduce the fee cap to 0.1¢, but during its consultation on that idea, it received pushback from certain industry firms, which warned that setting the cap at that level could make it tougher for Canadian trading venues to compete for inter-listed order flow.
“The rationale for the cap was to prevent order flow in Canadian securities migrating to U.S. marketplaces to avoid higher Canadian trading fees and to prevent potential share price distortions that may result from the combination of reduced minimum trading increments and high trading fees,” the regulators said in a notice outlining the change.
However, they noted that there’s no broad agreement within the securities industry about where to set the cap to keep order flow in Canada.
Ultimately, the regulators concluded that moving to a 0.17¢ cap would bring the Canadian market more in line with the U.S. market’s cap of 0.1¢ (U.S. currency), which is approximately 0.14¢ in Canadian currency at current exchange rates, while also, “providing marketplaces greater flexibility in setting their respective fee schedules.”
Looking ahead, the CSA said it’ll monitor the impact of the change in the trading fee cap on the market to determine if any further changes are needed.
At the same time, in a related move, the Canadian Investment Regulatory Organization (CIRO) is adopting changes to the trading rules to align the Canadian market with the U.S. when it comes to minimum trading increments for certain inter-listed securities.
Late last year, the CSA approved a CIRO rule change that would enable the adoption of different trading increment requirements for inter-listed securities and purely domestic securities.
Assuming that the required government approvals are received for the CSA’s rule changes, they will come into force on Nov. 2, on the same deadline as planned changes to U.S. market rules.
The U.S. Securities and Exchange Commission (SEC) had previously planned to implement changes — including lowering its trading fee caps and allowing for smaller trading increments — last year, but those reforms were stalled by litigation. The SEC is new set to adopt its reforms in November too.