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The NEO Exchange is attracting a growing number of ETF providers to its platform, continuing to challenge the dominant Toronto Stock Exchange (TSX) as the platform of choice for Canadian ETF listings.

NEO introduced new data services this year, which are attracting both the industry’s largest players and new entrants, fostering competition in the marketplace.

“The TSX has always been the go-to default — the gold standard, if you will — but it’s always good to have competition,” said Warren Steinwall, managing director and head of investment operations with Ninepoint Partners LP in Toronto. “I think NEO has done a great job of rocking the boat.”

Ninepoint has listed seven ETFs, including the Ninepoint Energy Fund ETF (NNRG), with NEO this year. Only one of the firm’s ETFs, the Ninepoint Bitcoin ETF (BITC.U), is listed on the TSX.

“Anything we can do to get any competition out there — real competition that lasts on a long-term basis — is going to be good for everyone,” said Alan Fustey, portfolio manager and ETF strategist with Bellwether Investment Management Inc. in Winnipeg.

As of Aug. 31, 2021, NEO is home to 87 ETF listings from 19 ETF asset managers — about half of Canadian ETF providers. Seven of the 10 largest ETF firms in Canada (ranked by assets under management [AUM]), including BlackRock Asset Management Canada Ltd., now list ETF products on NEO.

“Momentum has a way of being rewarded,” said Erik Sloane, chief revenue officer with NEO Exchange Inc. He suggested ETF firms could be choosing NEO’s platform because of its new closing-price methodology, its ability to provide consolidated trading data and its service. “If we keep doing everything right here at NEO, hopefully that results in more listings [directed] toward us.”

The TSX, meanwhile, has been busy introducing upgrades too, including its own new closing-price mechanism for ETFs, which launched in September 2021, and ETF research and analytical tools for financial advisors and investors.

As of Aug. 31, 2021, the TSX lists 850 ETFs, representing 98% of ETF AUM in Canada, and continues to dwarf NEO in both size and reach. The largest ETFs in Canada, including the BMO S&P 500 Index ETF (ZSP), with about $10 billion in AUM, and the iShares S&P/TSX 60 Index ETF (XIU), with about $12 billion in AUM, are listed on the TSX.

“If you want wide distribution, if you want retail investors’ attention, we’re the place to go,” said Graham MacKenzie, head of business development, ETFs, CEFs and structured notes, with TMX Group Inc., which operates the TSX. “People choose us because it drives success for their products.”

TSX-listed ETFs trade on 14 exchanges, including Omega ATS, the Canadian Securities Exchange and the TSX itself, which “really encourages better quotes and conditions for market-makers, arbitrageurs and investors, and those market-makers are really a key contributor to improving the experience for investors,” MacKenzie said.

NEO is unlikely to unseat the TSX from its leading position any time soon, Fustey said. However, the industry appears to support an alternative ETF listing platform: “ETF manufacturers feel there’s value in having their product listed [on NEO],” Fustey said.

In 2015, a group of Canadian capital-markets firms launched the NEO Exchange with the purpose of creating a listings, trading and technology competitor to the TSX. NEO’s parent company, Aequitas Innovations Inc., is co-owned by Barclays Corp., CI Investments Inc., IGM Financial Inc., RBC Dominion Securities Inc., Invesco Canada Ltd. and other large investors.

In August 2021, CI Global Asset Management (CIGAM) launched five passively managed ETFs under the CI Beta brand on NEO. CIGAM also listed an alternative asset ETF, a technology strategy ETF and an emerging markets ETF on the TSX.

CIGAM chose NEO for its CI Beta ETFs listings “because [NEO] has made ETFs a priority for the firm and implemented technology that supports the trading and pricing of ETFs,” stated Geraldo Ferreira, senior vice-president and head of investment products and manager oversight with CIGAM, in an email to Investment Executive (IE). CIGAM also believes in the value of competition, Ferreira wrote, which is why its parent company has an ownership stake in NEO.

NEO’s new closing-price methodology, implemented in April 2021, is intended to address an issue that arises when there is trading in the underlying securities held within an ETF, but infrequent trading of the ETF itself. In these cases, the closing price of the ETF might represent a trade that happened hours before market close — or from a previous trading day. That’s a problem for advisors and investors who may refer to an ETF’s closing price to make trading decisions.

NEO’s methodology involves establishing a price for an infrequently traded ETF that is a time-weighted average at the midpoint between the bid and ask through the final 15 minutes of the trading day.

In March 2021, Franklin Templeton transferred four region- and country-based ETF listings from the TSX to NEO, citing NEO’s new closing-price methodology as the primary motivation.

Said Sloane: “I’d also love to see some more migrations as managers evaluate their exchange of choice.”

Wealthsimple Inc. listed its Wealthsimple Shariah World Equity Index ETF (WSHR) on NEO in May 2021 because the exchange does “a good job making sure that the data investors need to trade our ETFs is widely available and accurate,” stated Ben Reeves, chief investment officer with Wealthsimple, in an email to IE.

Ninepoint was also drawn to the upstart exchange’s listing platform for its closing-price methodology and because trading volume data wouldn’t be fragmented, given that all trading of NEO-listed ETFs is executed on NEO and not on several exchanges.

“All of those metrics that we track daily to see how things are going [are] concentrated in one platform and then [NEO] pushes the data to us, so it’s easier for us to make sense of what’s going on with our products,” Steinwall said.

Lisa Lake Langley, president, CEO and founder of Toronto-based Emerge Canada Inc., which lists its six Emerge Ark ETFs on NEO, also appreciates “the ease of having all of our data consolidated in one place. It really has been beneficial for us in the early stages of our business to have purely one provider.”

In June 2021, NEO announced the launch of a service to provide reps registered with the Mutual Fund Dealers Association of Canada (MFDA) with real-time market data on listed ETFs, including TSX-listed ETFs, that trade on NEO. IGM, Vexo Inc. and Sterling Mutuals Inc. have partnered with NEO on the service so far, with about 5,000 MFDA reps signed up.

“[It’s] a one-stop shop,” said Sloane, referring to NEO’s data service for MFDA advisors. “They can get a quote; they can see volume; they can see charting.”

MacKenzie said that the TSX is not resting on its laurels as the preeminent listing platform; rather, the exchange is “absolutely invested in improving the experience for investors, advisors and issuers. [The TSX is] fully committed to helping in nurturing the growth of [Canada’s ETF] industry.”

The TSX worked closely with stakeholders and regulators on its closing-price methodology, a development that will “move the bar for Canadian investors,” Mackenzie said.

The TSX also emphasizes ETF education and investor awareness. Early in 2021, the exchange launched two services: the TSX ETF Investor Centre, a free online service that enables advisors and investors to research and compare TSX-listed ETFs; and TMX Logicly, a subscription service that provides ETF issuers, portfolio managers and advisors with in-depth ETF data analytics and portfolio-building tools.

The two TSX ETF research platforms are meant to address a gap in the Canadian ETF market, MacKenzie said. That gap puts advisors and investors through a “time-consuming and challenging” process when conducting research. They have to either visit each individual issuer’s website or visit U.S. websites that offer in-depth ETF research in one place, which could lead advisors to recommend a U.S. ETF over a Canadian equivalent.

“We’re challenging ourselves to build awareness for our providers and the Canadian ETF industry,” MacKenzie said. “Everything that we do is really focused on that.”