TMX plans new Alpha market

TMX Equities Trading is planning a new market consisting of two new Alpha order books, while doing away with its random trading “speed bump.”

The company filed an application with the Ontario Securities Commission for public comment that proposes the creation of a new market with two new order books: a lit book known as Alpha-X and a dark book, Alpha DRK.

The objective of the new market “is to provide a democratized trading environment, with focus on innovation and execution quality,” TMX said in a release.

“The introduction of the new order books provides platforms on which TMX can introduce innovative trading solutions, such as ‘smart limit’ and ‘smart peg’ orders, without incurring the risk of potential disruption that may accompany similar innovation on TSX, TSXV or Alpha,” it said in the application, noting that these new order types are designed to minimize the effects of latency arbitrage, which high frequency traders can use to exploit slower traders.

Additionally, the new market will use a static order processing delay instead of the randomized delay that has been used on Alpha in the past.

“Based on consultation with TMX’s trading participant community, it has become apparent that any potential benefit associated with the order processing delay randomization is countered by the complexity it adds and the difficulty it introduces to participants using algorithmic trading,” it said.

As a result, it is eliminating the random component of the order processing delay, and will apply a static delay of 1 millisecond on Alpha, starting in the second quarter, and a 10-millisecond processing delay on the new order books when they are launched in the third quarter.

“Based on our research and client consultations, we believe that removing the randomization component, and introducing the static delay period in its place, will not result in ‘gaming’ of the order processing delay, and some members may be able to benefit from a more predictable static delay,” it said.

The new market is expected to be implemented and available for trading in September, subject to regulatory approval. The exchange’s application is now out for comment until April 3.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.