UNDERSTANDING ALTERNATIVE TRADING SYSTEMS – ATS / DARK POOL TRADING
ATS or Alternative Trading Systems are market trading platforms within the Canadian equity marketplace that allow all participants in the Canadian Securities Industry to trade equities, and other financial instruments on ATS regulated trading platforms. These multiple trading platforms were designed, established and instituted to give more Liquidity and Best Fill / Price Discovery to the market.
This is great in theory, and we believe the regulators had the best intentions in mind for the market. However, the downside to the ATS system is there are no consolidated volume or consolidated market books readily available, at least at no cost, to regular market participants. You can get volume and market book trading data at no cost, from Issuer listed Exchanges like TSX, TSX Venture and CSE, but the Alternative Trading System marketplace doesn’t have the same access to this data. It doesn’t mean it isn’t available, but it is not available to the public via the listed Exchanges which the public has easy access to their own trading data.
This lack of accessibility leaves investors, not familiar with the ATS, at a potential disadvantage to those who do and use these ATS's to trade equities. In many cases, investors are not seeing all the trades that are happening daily. A free site for viewing delayed ATS trades is Stockwatch. This will give investors a better idea of actual trading volumes.
The Good News:
IIROC regulates securities trading and market-related activities of participants on all Canadian equity marketplaces (i.e. exchanges and alternative trading systems). Each Canadian equity marketplace has retained IIROC to:
Each Canadian equity marketplace administers, monitors compliance with, and enforces all other marketplace requirements unless IIROC has been retained to administer specific marketplace requirements.
The ATS Exchanges
NEO Exchange is an exchange that provides listing services and facilitates trading in securities listed on NEO Exchange, TSX and TSXV. NEO Exchange operates two separate trading books, NEO-N and NEO-L, and a crossing facility which for the purposes of UMIR are considered separate marketplaces. NEO Exchange has retained IIROC to administer its timely disclosure requirements for securities listed on NEO Exchange.
NEO-N provides trading in securities listed on NEO Exchange, TSX and TSXV. NEO-N subjects certain active orders to a delay as determined by NEO Exchange. Order price and volume information (aggregated by price) is available.
NEO-L provides trading in securities listed on NEO Exchange, TSX and TSXV. Order price and volume information is available.
NEO-D (dark) trades at the mid-point with no pre-trade transparency for securities listed on NEO Exchange, TSX and TSXV.
The Crossing Facility provides for the crossing of securities listed on NEO Exchange, TSX and TSXV.
Canadian Securities Exchange (CSE)
Instinet Canada Cross Limited (ICX)
Liquidnet Canada Inc. (Liquidnet)
Nasdaq CXC Limited (NCXL)
Omega ATS (Omega)
Lynx ATS (Lynx)
The Toronto Stock Exchange (TSX)
TSX Venture Exchange (TSXV)
TSX Alpha Exchange
TriAct Canada Marketplace (Match Now)
Liquidity can be defined as the market’s capacity to absorb trades from customers’ buy and sell orders at, or near, the last sale price of a particular stock. The greater the number of orders and shares available at a particular price, the more liquid the market will be. Some of the characteristics of liquidity are market depth, market breadth, and resiliency. Market depth refers to the number of orders at different prices that line the book. Market breadth is the number of shares that are wanted at a particular price level and the ability to absorb an incoming large order. Resiliency is the ability for a market to attract offsetting orders relatively quickly when order imbalances occur. An additional aspect that is important to assessing liquidity is the number of transactions executed on a marketplace.
Price discovery refers to the process through which the execution price for a trade is established. The discovery of a security’s fair market value is derived from two sources: the supply of and demand for the security, which indicate a participant’s willingness to transact at a given price, and information about transactions which have actually occurred. If prices are not transparent to participants, or there is unequal or incomplete information, participants will not be able to make informed decisions. In addition, if participants are not given access to markets where a security trades, they may be discouraged from participating or trading in that security and a less efficient price discovery process may occur.
Interested in 8020 Connect as a potential investment? http://bit.ly/8020Group
Be sure to join our community. The investment industry is about to change!