By Alastair Sharp
TORONTO, Jan 16 (Reuters) - Canadian upstart stock exchangeapplicant Aequitas Innovations Inc has tweaked its proposedtrading model after its initial plan was rebuffed by Ontario'ssecurities regulator, the company and the regulator said onThursday.
The Ontario Securities Commission (OSC) revealed on Thursdayit had blocked Aequitas' initial proposal because it restrictedaccess to visible orders, which breaks OSC rules ensuring fairaccess.
Aequitas is aiming to break the dominant grip of TorontoStock Exchange operator TMX Group with a model thatlimits controversial high-frequency trading (HFT) strategies.
It plans to offer so-called lit and dark markets, as well asa hybrid market combining features of each.
In a dark market institutional investors can trade in largevolumes without tipping their hand about pricing by notdisplaying their orders. More typical and traditional litmarkets offer price discovery via bid and ask quotes.
The prospective exchange operator said on Thursday that inresponse to the OSC decision it would instead make HFTuneconomical via fees and speed-bumps, rather than restrictaccess outright.
High-frequency traders use sophisticated algorithms to tradethousands of shares in a millisecond with the aim of earning aprofit from market making and price imbalances. But manyplayers, including some large fund managers, have criticizedtheir impact on markets.
The OSC will seek comment on the amended proposal as part ofAequitas' application for recognition as an exchange, whichAequitas plans to submit in the current quarter. The exchangeoperator had originally planned to launch by the end of thisyear, but now hopes to roll out its service in the first half of2015.
Aequitas has previously said it would shy away from anow-common fee structure in which one side of a trade - often analgorithmic trader - receives a rebate for placing an order.Exchanges often cover this cost with higher fees on the otherside of the trade, in many cases retail or institutionalbrokerages.
Aequitas is backed by Royal Bank of Canada, BarclaysPlc, pension fund OMERS Capital Markets, mutual fundmanagers CI Financial Corp and IGM Financial Inc, telecom company BCE Inc and others.
TMX is controlled by a consortium of Canadian banks andother financial institutions that thwarted a takeover bid byLondon Stock Exchange Group. The consortium, known asMaple Group, then combined the Canadian exchange operator withthe smaller Alpha exchange and a trading clearinghouse.
RBC, the country's biggest lender, was one of the fewCanadian banks not involved in the consortium, as it had advisedthe London Stock Exchange on its bid.
Barclays (BARC)