Photos of the TD Securities trading floor in Toronto on April 3 2013.Fred Lum/The Globe and Mail
After years of complaining from securities dealers that the country's multiple-stock-market setup costs too much money, Canadian regulators are moving to try to fix the problem.
The Canadian Securities Administrators, the umbrella group for the country's 13 provincial and territorial securities commissions, laid out the proposals Thursday. They include modifying a rule that forces securities dealers to connect to all markets, capping trading fees, studying an end to a controversial rebate system for trades, and reforming how markets can charge for data.
The issue revolves around order protection rule, which requires brokerages to ensure that when they buy or sell stock on behalf of a client, they check all the country's 13 stock markets for the best price. That means connecting to all of them, even if very little trading takes place on some markets, to ensure nothing gets missed. That also means subscribing to data feeds from all the exchanges, which can add significant costs.
Under the new proposal, only marketplaces that have a market share in Canada of 5 per cent or greater would be subject to the price protection rule – meaning securities brokerages would not have to check most of the marketplaces as only a handful currently meet that test. That would help to reduce costs, at the risk of cutting competition. Some of the smaller markets may not survive if dealers are not forced to connect to them.
"What we really heard from the market participants is the implementation of the [existing] rule has contributed to increased costs and inefficiencies," said Susan Greenglass, the director of market regulation at the Ontario Securities Commission. "It really caused us to step back and consider the whole framework and see what needed to be done."
Brokerage firms are still required to attempt to always get the best price, but there will now be "flexibility within the rule," Ms. Greenglass said.
She said the regulators wanted to be sensitive to ensuring competition. "We continue to be supportive of a competitive marketplace and innovation," she said, adding, "what we have really tried to do here is align the costs and benefits."
For data, there are proposals for new methods to "assess the reasonableness" of pricing for professional data fees, and a requirement that marketplaces seek re-approval for their fees every year.
As part of the proposals, the regulators are planning to study the potential effect of ending the practice of certain markets paying rebates to some traders. The system, known as maker-taker, gives rebates for some order types and charges fees for others. It can affect where brokers choose to send stock orders, because they may try to capture those rebates.
"We definitely heard concerns that the payment of rebates is really changing behaviours and providing incentives that may distort routing decisions."