CNQ secures financing to develop TSX alternative

Plans for an alternative to the TSX for trading Canadian securities moved one step closer to reality today after the Canadian Trading and Quotation System (CNQ) announced it closed an equity financing deal worth more than $10 million.

The financing will be used to complete the development of CNQ’s plans to launch an alternative market for trading equities listed on other Canadian stock exchanges, similar to the way Electronic Communications Networks (ECNs) like electronic trading firm, Archipelago Holdings and Instinet Group in the United States trade shares listed on the Nasdaq and New York Stock Exchange (NYSE).

Along with cheaper fees, CNQ’s system promises traders the ability to use algorithmic trading models. “We are creating a market to facilitate the growing demand for quick executions and a high ratio of orders to trades,” says Robert Cook, president of CNQ. “Algorithmic traders create programs that trade the market. They operate at very high speeds because the computer is making the trading decisions. This is the fastest growing end of the business, by far.”

NYSE members approved a deal earlier this week to take the exchange public by buying Archipelago. After the deal was first announced, Nasdaq announced its own deal, saying the company planned to buy Instinet and incorporate the trading firm into its own operations.

CNQ first entered the Canadian marketplace in January 2003 when it launched a quotation and trade-reporting system for small and micro cap shares leftover when the Canadian Dealers Network merged into the TSX Venture Exchange.

In October 2005, the system executed just over 1,000 trades, worth $3.6 million. An upgraded version of the technology, currently being tested to accommodate TSX level volumes, will likely power the new trading platform.

“We still have some development work to do, but we can see the end of that process,” says Cook. “The biggest challenge, really, is to get people to understand the full commitment of the organization to do it and our ability to deliver.”

The Ontario Securities Commission published CNQ’s application in October 2005. Cook says the company plans to revisit the issue with the OSC after the holidays and the new system will likely be up and running by the second quarter of 2006.

Filed by Kate McCaffery Advisor.ca, kate.mccaffery@advisor.rogers.com