Chi-X Canada ATS Ltd. is opening a new front in its battle for trading volume with TMX Group Ltd., operator of the country’s largest exchange.
The alternative trading system, a unit of Chi-X Global Holdings LLC, has secured approval from the Ontario Securities Commission for a new type of order designed to compete against TMX’s market closing auction, which sets end-of-day prices for stocks on the Toronto Stock Exchange as well as certain listings on the TSX Venture exchange.
The importance of introducing “competitive pressures” to the TMX facility was highlighted by people who commented on the proposal, the regulator said in its approval.
“There is no doubt that we can offer competitive pricing that will have an immediate benefit to the trading community,” Dan Kessous, chief executive officer of Chi-X Canada, said in an e-mailed statement.
Chi-X joins other marketplace operators who have begun targeting market-close auctions run by incumbent exchanges. Aquis Exchange Ltd., which handles less than 1 percent of European volume, introduced a similar plan April 20 to win market closing trade flow away from Euronext NV.
The Chi-X order will replicate closing prices for a given stock once they become available. Unmatched orders can either be routed to the listing exchange or sent back to the investor. Pricing for the orders hasn’t been finalized, the company said.
TMX charges as much as C$30 a trade for orders entered into its auction, according to its company website. Closing market prices are important for investors such as fund managers of index funds benchmarked to closing prices.
A spokesman for TMX said it wasn’t immediately able to comment.
Chi-X Canada had about 18 percent market share by volume traded as of March 31, according to data from the Investment Industry Regulatory Organization of Canada. TMX, which operates the TSX, Venture, Alpha and TMX Select, had about 74 percent of the market, the data show.
“There has not been sufficient pressure from market forces for the TMX to offer competitive pricing on the market-on-close facility,” said Alex Perel, a director of institutional equities at TD Securities Inc. in a comment letter submitted to the regulator. “The proposal is the first credible competitive mechanism for directly addressing the high level of fees charged by the TMX.”