The president and CEO of Market Regulation Services Inc. has reiterated his call for securities commissions to prevent trade-throughs on all markets in a speech Thursday to the semi-annual conference of Buy-side Investment Management Association in Toronto.

Tom Atkinson noted that the introduction of competition, such as Markets Inc., to the Canadian equity market has brought the trade-through issue back to the front burner. “I am entirely in favour of innovation and competition,” he said. “But that innovation and competition shouldn’t be directed towards finding new ways to exploit regulatory gaps through choices of trading venues or otherwise. It should be directed towards developing new ideas that increase the choices available to all of us, and that promote investor confidence and market integrity.”

RS is worried that trade-throughs can occur on new alternative markets, while they are prohibited on the TSX. The securities commissions are taking a wait-and-see approach to determine if trade-throughs occur, and if they do, whether they cause harm. “At RS, we believe that pre-emptive action to prevent harm from occurring in the first place is always in the best interests of the investor,” Atkinson stressed.

He said RS is pleased that the commissions are reviewing the trade-through issue. “Yet we believe that there should be some form of neutral interim protection from trade-through that should apply equally to each person with access to Canadian marketplaces while this debate goes on so that Canada continues to have safe, secure markets,” he argued. Otherwise, he warned, the markets could be vulnerable to regulatory arbitrage.

“We are going to continue to push for effective interim measures to protect the small Canadian investor from trade-through,” he said. “The U.S. learned that different sets of rules over different trading modalities lead to unforeseen, negative results. As we take our first step with competitive marketplaces, let’s not repeat their mistakes.”

Atkinson also tackled the issue of enforcement. “Our emphasis is on deterrence and preventing violations from occurring in the first place. We don’t make policy through enforcement actions,” he said. “We focus our time and effort on the most important risks to market integrity,” he said, noting that RS prefers to get smaller violations or errors corrected immediately. Only serious, deliberate cases will go to enforcement, he maintained.