The Toronto Stock Exchange is seeking comment on its plans to implement a call market, expected by the third quarter.

On May 29, the TSE board of directors of the approved amendments to the rules of the TSE to implement the “POSIT Call Market” as a facility of the TSE, and provide brokerage houses and eligible institutional clients access to the new market.

In November 2000, the TSE announced that it had entered into discussions to license and operate a matching system for equity securities from POSIT-JV, which is a joint venture between ITG Inc. and BARRA Inc.

The POSIT Call Market will offer an electronic equity matching system to brokers and institutions and will allow for TSE-listed stocks to trade anonymously during timed calls during the day with no impact on the auction market. Trades will match at the midpoint of the bid/offer spread.

The TSE says it believes that the introduction of the POSIT Call Market will provide participants with the desired ability to anonymously trade stocks with other participants at mutually satisfying prices while eliminating “market impact” costs. There will initially be two call sessions at approximately 10:30 ET and 14:30 ET. Any of the securities listed on the TSE are eligible.

The TSE recognizes that to some extent trades in the regular market may be used in an attempt to influence the POSIT price. For example, an individual could attempt to widen the spread on a stock in order to move the mid-point price of the spread in a favourable direction.

The TSE believes that this type of risk can largely be mitigated through: random match times so participants will not know exactly when the match will start and the mid-point price set; enhanced market surveillance; and continued enforcement of TSE anti-manipulation rules.

There are a number of rules that are incompatible with the key features of the POSIT call market, namely, anonymity, the matching algorithm and the POSIT pricing mechanism. These features may result in inadvertent violations of certain TSE rules, such as the short sale rule and the normal course issuer bid policy.

The TSE proposes that trades in the POSIT call market be granted exemptions from several rules to avoid this situation, on the basis that the system will still prevent the sort of market manipulation these rules are designed to avoid. The TSE is of the opinion that the proposed rules relating to the operation of the POSIT call market are consistent with the proposed ATS rules.