After OSC refusal, Aequitas will revise proposal for trading market

The newest would-be entrant in the Canadian stock exchange business says that the changes made in a bid to placate regulators do not compromise its plan build a market free from excessive high-frequency trading (HFT).

Aequitas Innovations, a firm backed by some of the country's biggest financial institutions, has spent months dealing with regulators and consulting investors on its proposal. The Ontario Securities Commission said Thursday that it rejected the original proposal, citing fairness concerns. Aequitas says it will forge ahead with a new application and expects to be open for business in about a year.

Aequitas will join about a dozen other markets that try to compete with the main exchange in Canada, the Toronto Stock Exchange, which still hosts most of the stock transactions done in the country.

The goal of Aequitas is to create a market for investors who are buying with a more long-term perspective by putting up roadblocks to some HFT strategies that the firm and its backers say are predatory.

Aequitas has made some changes to some of the more controversial aspects of its original plan. The original proposal was to build three separate markets, each with different characteristics but a common theme of discouraging unwanted HFT activity. However, the OSC did not like some of those ideas, such as the notion of barring certain types of traders. That went against a fundamental market principal that says all traders should have access to all orders that are visible to the marketplace.

"There could be no compromise to our vision," said Aequitas chief executive officer Jos Schmitt. "That was always there in whatever fine tuning we did."

Instead of making HFTs unable to trade in some parts of the market, Mr. Schmitt said "we make it unviable. We'll apply fees and we are going to slow them down."

Aequitas appeared on the scene last summer. The company is backed by Royal Bank of Canada, Barclays, IG Investment Management, CI Financial and other financial firms. Its goal is to create a market that appeals to long-term investors who feel that they are being gamed by HFT firms in other markets.

Aequitas has also said it plans to roll out products that help investors trade shares of companies that are not yet public, and to fight what it says are excessive costs for feeds of data such as stock quotes.

The OSC will now review the new application, and seek public comment.