BUSINESS

Upstart stock market Aequitas NEO Exchange on track to its goals, CEO says

07/02/2015 04:00 EDT | Updated 07/01/2016 05:59 EDT
TORONTO - The head of the Aequitas NEO Exchange says the upstart stock market is on track to reach its goal of snatching 20 per cent of Canada's trading volume within three or four years.

"We still have a long journey ahead of us in continuing to grow, but we are definitely, at this stage, ahead of what we anticipated," said Jos Schmitt, the company's president and chief executive officer.

"I can only hope that we continue on that track."

Since its launch three months ago, Aequitas NEO — which bills itself as a more fair alternative to the Toronto Stock Exchange and has backing from a number of financial industry heavyweights including Royal Bank (TSX:RY) and Barclays — has captured more than three per cent of trade volume.

In dollar value, it's taken close to five per cent of the market.

A number of other exchanges have tried to compete with the TSX, but none has succeeded in taking away significant market share from the Canadian giant.

Royal Bank has previously backed a TSX rival — Alpha Trading Systems, which was launched in 2008. But a few years later, in 2012, the trading platform was bought by Maple Group Acquisition Corp., which also acquired TMX Group, owner and operator of the Toronto Stock Exchange.

Schmitt, who once ran Alpha and left when the company was taken over by TMX, says the Aequitas NEO Exchange has unique features that he hopes will allow it to succeed where other TSX rivals have failed.

Among them is the exchange's use of a time delay, or "speed bump," to deter predatory high-frequency trading (HFT) strategies.

These practices have been blamed for inserting artificial volatility into the markets by using superfast computers to engage in activities such as exploratory trading, or making small orders to see if there is interest in a stock.

High-frequency traders can also clog up bandwidth by engaging in up to 5,000 trades per minute, thus delaying trades made by ordinary investors.

Last week, the exchange — which allows investors to trade TSX-listed stocks — launched its own listing platform, giving companies looking to go public a cheaper alternative to the TSX.

Aequitas says initial listing fees for corporations can be as much as 67 per cent lower than those charged by the TSX, while annual fees will be up to 55 per cent lower.

But Schmitt says the company is looking to compete on more than just costs.

"Not only is there a cost benefit with us, but there is also a value benefit with us," says Schmitt, adding that the exchange has put in mechanisms to boost liquidity. Market data on NEO Exchange-listed stocks will be provided to investors for free in a bid to boost the companies' exposure and attract more investment.

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