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By Alastair Sharp
TORONTO, Aug 13 (Reuters) - Ontario's securities regulatoris seeking opinions on a prospective exchange operator's radicalproposals about market trades and will mull whether to amendrules governing Canadian markets to accommodate the newcomer.
The new entrant, Aequitas Innovations Inc, aims to break thedominant grip of Toronto Stock Exchange operator TMX Group on Canadian equity trading with innovative structuresthat it says will improve the overall quality of trading.
Aequitas is backed by Royal Bank of Canada and otherbig investors and has yet to file for an operating license. It has, however, filed a patent for its hybrid lit-dark order book.The hybrid combines aspects of a dark market, whereinstitutional investors can trade in large volumes withouttipping their hand about pricing, with a more typical lit marketthat offers price discovery via bid and ask quotes.
The Ontario Securities Commission, Canada's main regulator,has rules for both types of markets. It does not have a rulebook for a market place that combines them, leading to Tuesday'sconsultations, which have a Sept. 27 deadline.
The OSC also wants market participants to comment on whetherAequitas should be able to offer priority in trade execution tomarket makers and add market makers not accredited with theInvestment Industry Regulatory Organization of Canada, Canada'smain self-regulatory body.
"It is an enduring objective of the OSC's work in this areathat markets remain fair and participants have confidence inmarket quality and integrity, including order entry, executionand settlement processes," the regulator said in the request forcomment posted on its website.
Aequitas said it was eager to hear the views of theinvesting community during the 45-day consultation process,which opened before Aequitas has even filed an application forrecognition as an exchange.
"We are extremely happy that they are actively participatingin the dialogue that we initiated," Aequitas' chief executive,Jos Schmitt, told Reuters. "When I look at the objectives thatthe regulations seek to achieve and I look at what we seek toachieve, I think we are tremendously aligned."
Aequitas would be a direct competitor to TMX, which handlesroughly 80 percent of equity trading by value in Canada.
Aequitas on Tuesday added telecom blue-chip BCE Inc and pension fund OMERS Capital Markets to a list of foundinginvestors. That list includes Barclays Plc, Canadianmutual fund managers CI Financial Corp and IGMFinancial Inc, pension fund PSP Public Markets, andInvestment Technology Group Inc as well as RBC.
TMX is controlled by a consortium of Canadian banks andother financial institutions. RBC, the country's biggest lender,was one of the few Canadian banks not involved in theconsortium, as it had advised the London Stock Exchange on anunsuccessful bid for TMX.
