The Canadian Securities Administrators (CSA) is seeking comment on its proposal to launch a pilot study to examine the effects of a prohibition of trading fee rebate payments by Canadian marketplaces, the CSA announced Tuesday.
Details on the proposed pilot are included in a CSA notice.
“The proposed pilot would provide valuable information regarding the impact of trading fees and rebates on the behaviour of market participants, and market quality in general,” says Louis Morisset, chair of the CSA and president and CEO of the Autorité des marchés financiers, in a statement.
The predominant trading fee models used in Canadian equities markets are ‘maker-taker’ and the ‘inverted maker-taker,’ the CSA says in a news release. “Under both of these models, a marketplace charges a fee to one party of the trade and pays a rebate to the other party.”
The proposed pilot will allow regulators to consider:
- market structure issues that are raised by the use of rebates, including conflicts of interest in dealer routing decisions;
- increased segmentation of order flow; and
- increased intermediation of actively traded securities.
“The objective of the proposed pilot is to study the effects of the prohibition of rebate payments by Canadian marketplaces,” the CSA says in its noice.
The pilot would be run in parallel with a study that is being considered by the U.S. Securities and Exchange Commission (SEC). The timing of pilot is somewhat dependent on the SEC’s plans, which have yet to be finalized, the CSA says. The CSA plans to runs its study on stocks that are not inter-listed in the U.S. for three to six months before the SEC test; and then to study inter-listed stocks alongside the SEC test.
The CSA’s proposed pilot would include a sample of highly liquid securities and a sample of actively traded, medium-liquidity securities, and would cover both exchanges and alternative trading systems .
A trio of academics have been hired to design the CSA’s pilot. Katya Malinova, DeGroote School of Business, McMaster University Andreas Park, Rotman School of Management, University of Toronto and Andriy Shkilko, Lazaridis School of Business and Economics, Wilfrid Laurier University, will also conduct an empirical analysis of the data produced to investigate the effects of the rebate prohibition.
The proposed pilot is out for a 45-day comment period, ending Feb. 1, 2019.