The Toronto Stock Exchange (TSX) is gearing up to roll out a new dealing platform and pre-trade matching system later this year as it steps up efforts to fend off competition from alternative trading systems (ATSs) in the Canadian market.
TSX CEO Richard Nesbitt told delegates at an industry conference that the exchange would fight competition with new technology and services and not just price cuts.
The exchange is facing increasing competition from alternative trading systems setting up in the Canadian marketplace, including those operated by Liquidnet and Instinet.Furthermore, earlier this year seven of the biggest investment dealers in Canada said they are establishing an ATS, called Alpha, in a bid to increase equity trading efficiencies and make the country more globally competitive.
But Nesbitt claims that new capabilities, competitive pricing and new trading products will make TSX "a more attractive destination".
"When I think of the ATSs, if it's a matter of our trading products versus their trading products, our trading fees versus their trading fees, our capacity versus their capacity, the speed of our trading system versus their speed, we can compete," said Nesbitt. "And if their trading speed is a millisecond faster than ours, we'll make the investments we need to become a millisecond faster than them."
Nesbitt said TSX will be adding substantial performance and capacity to the markets in the next year, including the roll out of its new trading platform, called Quantum, later this year.
Lab testing has indicated that the new trading engine "will allow clients to configure their systems to achieve single digit millisecond round trips," he said.
The exchange also plans to implement ATX (Alternative Trade eXecution), its so-called "dark liquidity matching" platform, later this year after getting regulatory approval from the Ontario Securities Commission. The pre-trade matching system will match firm order flow against in-house interest, as well as the undeclared interest of other market participants, in a blind electronic book.
Nesbitt told delegates that even while the exchange was preparing to roll out new trading technology it was also optimising the use of existing technology for algorithmic trading.
The TSX said in February that it had signed a $20 million contract to replace core trading engine hardware with Integrity NonStop servers from HP. The move is part of the exchange's TSXPress initiative, which is a series of system upgrades designed to ramp up execution speeds for algorithmic trading.
Research released by capital markets analyst firm Forefactor earlier this year found that US broker dealers were cornering Canadian market in algorithmic trading. The study found that more than one-third of total trades originating in Canada are now executed algorithmically, but that most of the soils are going to US-based players.