An investor advocacy group has come out in favour of trying out the novel trading structure proposed by Aequitas Innovations Inc.
The Canadian Foundation for Advancement of Investor Rights (FAIR Canada) has just submitted its comment on the Aequitas proposals (well after the Sept. 27 deadline), noting that many of the concepts discussed in the notice from the Ontario Securities Commission (OSC) are too complex for the average retail investor to assess, but that regulators should nevertheless be considering investors’ interests.
The group then sets out its position on the proposals, which, among other things, propose a novel market structure designed to exclude predatory high frequency trading (HFT) strategies. FAIR says that it supports that objective, although it cannot say whether the Aequitas proposals will achieve its goals.
However, it supports the idea of regulators allowing some experimentation to take place in order to explore the efficacy of market-based solutions to market problems. “It is important not to rely only on regulatory controls and intervention to address market integrity and fairness issues,” it says.
Moreover, it suggests that regulators should be prepared to allow exceptions from existing trading rules to allow new models to be tested in the real world. But, it adds that these sorts of innovations, “must satisfy core principles of market regulation that aim to protect investors, ensure fairness in trading markets and promote market integrity.”
In terms of the Aequitas proposal itself, it suggests that its proposed hybrid book — which includes some features of dark markets, and some lit market features, and would only allow retail and institutional investors to take liquidity in order to exclude HFTs — represents a “reasonable limitation” on fair access principles.
FAIR also says that it doesn’t oppose new approaches to market making being tested, “but the rules must ensure that market makers’ obligations provide meaningful benefits to investors and market quality.” And, it stresses that all market makers should be subject to the same standard of regulation.