Canada
21 August 2013
Canada has recently introduced some new ventures that have a relatively democratic aim. AST investigates what will come of them
Image: Shutterstock
Financial news coming out of Canada often has an integrity-led slant that is somewhat unique, compared to the global industry.
Take, for example, the launch of Purpose Investments this January. The founder, president and CEO of Purpose is Som Seif, previously the president and CEO of Claymore Investments.
Claymore was one of Canada’s fastest growing asset managers, organically growing AUM to $7.8 billion when it was acquired in 2012.
But Seif chose not to concentrate on numbers with the launch of the new asset management firm, which he described as, “wholeheartedly committed to democratising the investment industry, providing all Canadians access to a range of investment strategies that have traditionally been out of their reach”.
Similar to this sentiment was the creation of a new Canadian stock exchange, which will compete with current exchange TMX Group.
Aequitas Innovations entered the Canadian capital markets to establish a new stock exchange that promises to restore what it calls the “original purpose” of an exchange: the efficient allocation of capital between issuers and investors as a central force driving the Canadian economy.
The CEO of the exchange is Jos Schmitt, who originally started Alpha Group as a rival platform to TMX. He left the company in October after it was bought, along with Canadian Depository for Securities, to combine with TMX for $3.73 billion.
“We are seeking to apply innovation, technology and competition to improve fairness and efficiency in the markets with particular attention to the benefits of investors and issuers,” said a release from the firm.
“Our stakeholders are professional money managers, pension funds, institutional and retail brokers and Canadian issuers, who believe there should be a level playing field for all market participants. A new and different exchange that strikes the right balance between liquidity, price discovery and cost efficiency, and enhances markets for the long-term investor.”
“We are at a crossroads for our markets and we believe that competition will enhance confidence in Canada’s capital markets, but more of the same won’t address the issues that exist. Instead, we will tap innovation and technology to promote liquidity, fairness, cost savings and economic growth.”
Aequitas’s founding investors include Barclays and the Royal Bank of Canada, among others.
The mission seems admirable, but it is not out of the woods just yet. The Ontario Securities Commission (OSC) announced on 14 August that it was seeking public comment on the new exchange, and pointed out that Aequitas has not yet filed an application with the OSC for recognition as an exchange.
The commission set out the market structure context and the principles underlying the associated regulatory structure that has been established over the last number of years, in particular noting the order protection rule and dark rules, which outline the regulatory approach to dark liquidity. Then, it asked 17 questions of the exchange, inviting public to also comment.
Aequitas was quick off the draw when it came to addressing concerns. One query of the commission was on the exchange’s ‘hybrid book’—a liquidity pool that will display resting orders in an aggregated way, and will only allow long-term investors to take liqudity. Somewhat ironically, given the exchange’s promises of democracy, the commission asks if the book unfairly limits access.
“Limiting access should not be considered unreasonable when it supports market quality and addresses harm in the marketplace,” came the exchange’s answer. It seems that there is a while to go yet before regulator and innovator can join together, in the creation of a competing exchange in the Canadian markets.
Take, for example, the launch of Purpose Investments this January. The founder, president and CEO of Purpose is Som Seif, previously the president and CEO of Claymore Investments.
Claymore was one of Canada’s fastest growing asset managers, organically growing AUM to $7.8 billion when it was acquired in 2012.
But Seif chose not to concentrate on numbers with the launch of the new asset management firm, which he described as, “wholeheartedly committed to democratising the investment industry, providing all Canadians access to a range of investment strategies that have traditionally been out of their reach”.
Similar to this sentiment was the creation of a new Canadian stock exchange, which will compete with current exchange TMX Group.
Aequitas Innovations entered the Canadian capital markets to establish a new stock exchange that promises to restore what it calls the “original purpose” of an exchange: the efficient allocation of capital between issuers and investors as a central force driving the Canadian economy.
The CEO of the exchange is Jos Schmitt, who originally started Alpha Group as a rival platform to TMX. He left the company in October after it was bought, along with Canadian Depository for Securities, to combine with TMX for $3.73 billion.
“We are seeking to apply innovation, technology and competition to improve fairness and efficiency in the markets with particular attention to the benefits of investors and issuers,” said a release from the firm.
“Our stakeholders are professional money managers, pension funds, institutional and retail brokers and Canadian issuers, who believe there should be a level playing field for all market participants. A new and different exchange that strikes the right balance between liquidity, price discovery and cost efficiency, and enhances markets for the long-term investor.”
“We are at a crossroads for our markets and we believe that competition will enhance confidence in Canada’s capital markets, but more of the same won’t address the issues that exist. Instead, we will tap innovation and technology to promote liquidity, fairness, cost savings and economic growth.”
Aequitas’s founding investors include Barclays and the Royal Bank of Canada, among others.
The mission seems admirable, but it is not out of the woods just yet. The Ontario Securities Commission (OSC) announced on 14 August that it was seeking public comment on the new exchange, and pointed out that Aequitas has not yet filed an application with the OSC for recognition as an exchange.
The commission set out the market structure context and the principles underlying the associated regulatory structure that has been established over the last number of years, in particular noting the order protection rule and dark rules, which outline the regulatory approach to dark liquidity. Then, it asked 17 questions of the exchange, inviting public to also comment.
Aequitas was quick off the draw when it came to addressing concerns. One query of the commission was on the exchange’s ‘hybrid book’—a liquidity pool that will display resting orders in an aggregated way, and will only allow long-term investors to take liqudity. Somewhat ironically, given the exchange’s promises of democracy, the commission asks if the book unfairly limits access.
“Limiting access should not be considered unreasonable when it supports market quality and addresses harm in the marketplace,” came the exchange’s answer. It seems that there is a while to go yet before regulator and innovator can join together, in the creation of a competing exchange in the Canadian markets.
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