There has been much discussion in the trading community lately about dark pools and internalization and many market participants have formally contributed to recent consultations with regulators.

We have been pleased to see so many echo concerns about proposed changes that could undermine some of the most basic principles of Canada’s public equity markets… principles designed to ensure the health, integrity and liquidity of these markets.  Principles potentially at risk include:

• Fair access for all investors to Canadian liquidity venues
• Meaningful price improvement
• Responsibility of dealers to provide clients with best execution on all orders

Contrary to these vital market features, proposed changes could result in:

• Further market fragmentation with increased order flow concentrated among a handful of dealers using segregated liquidity pools, thereby negatively impacting overall market liquidity.  This risk will be even greater if there is selective access to these liquidity pools through “jitney trading” (i.e. when a broker with direct access to the liquidity trades for a broker who does not have access).  This would increase the concentration of order flow among a select few.
• Orders that undermine national prices by executing at movements measuring a fraction of a penny, rather than the full penny minimum required in the “visible markets” (i.e. Canada’s transparent marketplaces, including Toronto Stock Exchange and TSX Venture Exchange)
• Client orders could be processed with less than optimal execution, rather than in the market with the best execution capabilities.

These matters are complicated and understandably, there are a variety of viewpoints on what is the best path forward.  It’s encouraging to see so many market participants articulating concerns around the risks highlighted above, among others.

The integrity of our market rests with the many, not the few, and it’s vital that the collective voices be heard so that the best interests of the market, as a whole, are served.

Filed under: Equity Trading, TMX Group, TSX Venture Exchange, Toronto Stock Exchange