TMX bows to pressure and lowers ‘maker-taker’ fees

• TMX Group plans to trim a controversial “makertaker” pricing model that faced criticism for rewarding high-frequency electronic traders at the expense of traditional market players.

The move by the owner of the Toronto Stock Exchange, effective June 1, comes about a year after Canadian regulators said they would study the impact of scrapping the controversial pricing model, which they were concerned was “incentivizing behaviours” that could have a negative impact on the market.

The pricing changes announced by the TMX on Monday “should result in reduced fees for dealers and lower revenues [and] profits for HFT players,” said Doug Clark, managing director of research at ITG Canada Corp.

“The Street has been asking for this for several years, and will be happy to see TMX finally take this step.”

Kevan Cowan, president of TMX Markets, said the regulatory scrutiny played a role in the decision, as did the competitive landscape and longstanding criticism of the maker-taker system by TMX customers.

Toronto-Dominion Bank was among the outspoken critics after the pricing model — which pays rebates to traders who bring liquidity to markets while changing a fee to those who take liquidity out of the market — was put in place a decade ago.

The maker-taker model has also come under fire in the United States amid criticism it puts the emphasis on fees and rebates for dealers at the expense of executing the best trades for their clients.

TMX, Canada’s dominant exchange group, plans to phase in adjustments to maker-taker rates over the next 18 to 24 months, and to monitor the results.

“This is not an abandonment of the maker-taker model,” Cowan said in an interview, noting that it is meant to improve the dominant exchange group’s competitive position in tandem with other tweaks intended to keep trading of some 200 inter-listed companies from migrating to the United States.

The change in fees and rebates for trading these inter-listed stocks will not be as large as for the non inter-listed stocks, he said.

Taker fees will be reduced by up to 34 per cent with an average reduction of 26 per cent across all securities and participants. The “maker” rebates will be reduced by an average of 31 per cent.

ITG’s Clark said it is not a surprise that TMX announced the changes to the pricing model the same day rival Aequitas began trading all TMX-listed stocks. The new trading group, backed by financial powerhouses including Royal Bank of Canada and IGM Financial Inc., also plans to launch an exchange later this year to compete directly with the Toronto Stock Exchange. ITG Canada Corp. is also an investor in Aequitas.

The street has been asking for this for several years, and will be happy to see TMX finally take this step. — Doug Clark, managing director of research, ITG Canada