Aequitas launch brings hope for better market conditions
TORONTO The Aequitas NEO Exchange was launched to great fanfare on Friday, but the upstart rival to the Toronto Stock Exchange still has a long way to go in fulfilling its promise of “levelling the playing field” for Canadian investors and eliminating predatory highfrequency trading practices in the country, says one of its newest allies.
“There are building blocks that have to be put in place. You can’t just snap your fingers and expect everything to change,” said Kevin Cronin, global head of trading at Invesco Ltd., the Atlanta-based fund giant with $809.4 billion US in assets under management, whose Canadian division joined the list of industry heavyweights backing Aequitas this month.
“There is an industry of highfrequency traders who will try to figure out how to intercede trading still, but this is a good start.”
Cronin, on hand for the ceremonial launch at the Design Exchange in downtown Toronto, has been a vocal advocate for market structure reform over the past few years and was named in January to the U.S. Securities and Exchange Commission’s Equity Market Structure Advisory Committee, a panel that will help the regulator determine rule changes for how shares trade.
The same month, he helped create Luminex, a dark pool owned by nine fund companies with an aim to trade large stock orders with each other at low costs.
He said new technologies are shaping market exchanges, but they often create conflicts of interest, which make it challenging for firms like his to get the best outcome for clients.
One of his biggest concerns is that high-frequency trading puts far too much emphasis on trading speed rather than price of the trade, which is of far greater importance to investors.
“If we spend months and months getting to know a company and picking our entry and exit points, we don’t care about trading in milliseconds. That’s inconsequential to us,” he said. “What we want to do is trade at the right price.”
As a result, Cronin says Invesco is excited to invest in the likes of NEO and Luminex, which, he believes, are both designed to bring greater fairness and transparency to markets, in part by slowing down participants so everyone plays at the same speed.
“When I hear an exchange is being developed that is about issuers and investors, that stands out because a lot of exchanges have gotten away from that core mission,” he said.
“We’re interested in helping facilitate competition in the markets and at the same time, if NEO can help deliver better behaviour in the industry, we’re for that.”
For now, 45 securities are available to trade on the new platform, but that number is expected to grow once Aequitas launches its listing service in the near future.
The exchange, whose backers also include Royal Bank of Canada, OMERS Capital Markets and Barclays Corp. Ltd., is expected to have a positive impact on investor confidence as it develops into a full-blown listings exchange in the months ahead.
But Cronin thinks the greater impact of the exchange will be in its ability to drive more responsible behaviour among its competitors.
“Logically, it should have success because a lot of people are tired of the way the system works. I hope it’s tremendously successful, but if we find that the real value of it was to drive change in the industry, it would be worth the investment.” he said.
His firm will obviously use Aequitas’s new trading platform, but not exclusively. Despite its advantages, it may not always be the right avenue for every type of trade.
“What we want to have is the right amount of tools in our arsenal to trade how we want to trade,” he said. “Those are things that benefit our clients and (NEO) is part of that.”