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Jos Schmitt, President and CEO of Aequitas NEO Exchange, is pictured in the operations room of the company's Toronto offices on Wednesday March 25 2015.Chris Young/The Globe and Mail

Canada's oldest and youngest market operators are jostling to be the most attractive place where exchange-traded funds are listed and traded, in an attempt to cash in on the burgeoning asset class.

Since 2011, the number of ETF listings on the Toronto Stock Exchange has more than doubled to 409 from 16 providers, as of Tuesday. In April alone, 14 new ETFs were listed on the TSX.

Aequitas Neo Exchange Inc., an upstart backed by a consortium of financial institutions that includes RBC Capital Markets, is making a play for a piece of the growing ETF pie. In March, the Neo Exchange celebrated its very first listing: an ETF from Invesco Canada Ltd., another Aequitas financer.

But the nascent exchange is punching above its weight in ETF trading. Last month, it garnered 19 per cent of ETF trading volume and 24 per cent of the value, according to data it provided from Reuters and boasted about this week in a news release. It beat out seven other trading venues in Canada and trailed only the TSX, which handled 41 per cent of the total volume in ETF trading and 37 per cent of the value. (ETFs, like other securities, are listed on one exchange, but they can trade on other venues.)

A spokesman at TMX Group Ltd., which operates the TSX, responded to the release by saying that Aequitas is cherry-picking the data to make itself look like a larger threat than it really is. The reason, according to the TSX, is because the Neo processed a higher proportion of cross trades, which occur when two accounts within the same dealer buy and sell a security at an agreed price and volume.

Excluding crosses at all venues, the Neo had 11 per cent of ETF trading volume in April and 14 per cent of the value, while the TSX commanded a market share of 48 and 45 per cent, respectively.

The Neo and the TSX rarely see eye to eye, but there is one thing they can't dispute: Given the dearth of new corporate issuers, the country's stock exchanges are looking at ever-popular ETFs – and the trading volume they are attracting – as their ticket out of the ongoing slump. These funds have become the hottest products for asset managers and have amassed insatiable demand from investors.

Jos Schmitt, CEO at Aequitas Innovations Inc., which runs the Neo, said he doesn't see the explosive growth in ETFs slowing down any time soon.

"We see a substantial pipeline of new ETFs across all the issuers," he said in an interview. "We will fight for each and every one. We're proving that we're very serious contenders for those."

Even though the Neo has secured only one ETF listing to date, the company executives are convinced that it has already gotten under the skin of its main rivals at the TSX.

They point to a change made on Feb. 1, days after Invesco filed its prospectus to list one of its ETFs on the Neo. Neo executives note that the TSX waived one of the fees that it used to charge new ETFs early on. Under the old rules, after paying $7,500 to list, a fund would have been billed the annual maintenance fee for its original listing year on a pro-rated basis for the rest of the year. Depending on the market cap of an ETF and whether a provider has multiple funds listed, this fee usually ranges from $3,675 to $25,000. Now, ETFs are the only asset class on the TSX that don't have to pay this particular charge after the first year.

The Neo Exchange, in contrast, charges new ETFs $5,000 to list, and between $3,500 and $22,000 to keep that spot, according to a fee schedule dated Jan. 14. The document states that the Neo still invoices ETFs a fee after the end of their first listing year, unlike the TSX.

TSX officials say the pricing change was not a direct response to Neo's first ETF listing, but Aequitas's CEO is not convinced. "That is clearly, without a shadow of a doubt, a result of competitive pressure," Mr. Schmitt said.

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