The Ontario Securities Commission (OSC) has granted regulatory approval to Aequitas Innovations Inc. and recognized Aequitas Neo Exchange Inc. as an exchange, effective Mar 1, 2015.
The new stock exchange, which is backed by a handful of industry firms, seeks to deter abusive high-frequency trading strategies (HFT).
The firm indicates that it is on track to launch its trading platform and listing platform in the first half of 2015. A private markets platform will then follow, subject to regulatory approval.
The new exchange is backed by various industry firms, including Barclays Corp. Ltd., CI Investments Inc., IGM Financial Inc., ITG Canada Corp., OMERS OCM Investments II Inc., PSP Public Markets Inc. and RBC Dominion Securities Inc.
Aequitas says that before it launches operations, the ownership structure will be further expanded, “with the aim of reaching an optimal representation of all types of market stakeholders – both small and large.”
“We are thrilled to receive approval from the OSC to move forward and launch the Aequitas Neo Exchange,” stated Jos Schmitt, president & CEO of Aequitas Neo Exchange. “We appreciate the careful review undertaken by the OSC. We are now in a position to help promote confidence and build an exchange of the future using a bold new blueprint that puts investors, companies and their dealers first.”
“Aequitas’ vision is to build an exchange that facilitates the efficient allocation of capital between companies and investors,” said Greg Mills, chairman of Aequitas Innovations and head of global equities at RBC Capital Markets.
Earlier this year the OSC shot down Aequitas’ first proposal for a new exchange that was designed to combat abusive HFT.
Aequitas came up with a new approach, which will impose a speed bump and higher fees on certain traders, that has now won regulators over. In its recognition order, the OSC notes that a number of commenters raised concerns that these features, and especially the imposition of speed bumps, would result in unequal and restricted access to the marketplace.
“We agree that Aequitas Neo Exchange would be the first transparent marketplace to introduce differentiated access standards to its facilities. This was a significant consideration in our review,” the OSC notes. However, it has concluded that the proposed trading model and access standards do comply with fair access requirements.
“While the standards for access will not be the same for all participants, we believe some flexibility and differentiation is not unreasonable, as long as participants are not unreasonably prohibited or limited from accessing a marketplace,” the OSC says in its notice. “In our view, while the access to the Neo Book will be different for the [HFTs], there is no unreasonable limit or barrier to access this book that would apply to any group of participants.”
The commission acknowledges that approving this model may lead to other proposals that differentiate between traders; and, it says that it will “review each proposal considering its impact on the market and market participants and with a view to factors such as fairness, transparency, liquidity and market integrity.”
Additionally, it says that Aequitas Neo Exchange made a number of changes to its proposed trading policies, member agreement, market maker agreements, and listing manual. For instance, its trading policies have been revised to remove benefits for market makers in its dark pool. The definition of HFTs has also been revised, the order notes, so that it now only includes “proprietary traders of dealers using automated, co-located trading strategies, and direct electronic access clients that use automated, co-located trading strategies.”
The notice indicates that order protection will apply to the Neo Exchange, notwithstanding proposed changes to the order protection rule (OPR). It says that the proposals to reform the OPR, including the introduction of new minimum market share requirements, raises a number of significant issues; and, that, as a result, it’s not likely to finalize changes to the OPR requirements anytime soon. “For this reason, and for fairness and consistency with other marketplaces that have launched in recent years, OPR will apply to Aequitas Neo Exchange in its current form,” it says.