The OSC has issued an update regarding the Notice and Request for Comments on the Aequitas Proposal, published on the OSC’s website on August 13, 2013.
“The OSC reviewed the Aequitas pre-filing within the context of the current regulatory framework and more broadly, the OSC’s statutory mandate to provide protection to investors from unfair, improper or fraudulent practices and to foster fair and efficient capital markets and confidence in capital markets,” the release states.
“After a thorough review of the proposal and related comments, the OSC informed Aequitas that it could not support the proposal as published. In particular, the proposal included restrictions on access to visible orders which do not conform to existing requirements of the regulatory framework, including fair access.
“After being notified, Aequitas submitted an alternative proposal with amendments to address concerns raised. This alternative proposal will be published for comment in the context of a full exchange recognition application. Comments from stakeholders will be requested on the revised proposal at that time. More information on the exchange recognition process is available on the OSC website.”
The revised proposal’s amendments are:
- The mechanism to identify predatory high frequency trading strategies will be refined to ensure it will not be impacted by the potential abuse or other shortcomings of the Short Marking Exempt regulatory marker;
- The mechanism to prevent predatory high frequency trading strategies from taking liquidity in the Hybrid book will be replaced by a mechanism that will, rather than restrict access, make these strategies uneconomic through a combination of trading fees and speed-bumps;
- Execution priority of designated market makers, designed to reward their commitment to provide reliable liquidity, will be capped to avoid the potential risk of ‘crowding out the quote’; and
- Clients of Aequitas members with Direct Electronic Access will not be allowed to act as designated market makers.
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