Nasdaq Inc. is set to launch its Canadian "dark pool" exchange on Halloween, a move that will introduce more competition into a small but growing part of the exchanges market.
In an exclusive interview with The Globe and Mail, Dan Kessous, chief executive officer of Nasdaq CXC, said the U.S. behemoth will launch its dark pool on Oct. 31. (While Nasdaq's marketing team is happy about launching the same day as the spooky holiday, the timing was just a coincidence, a spokesperson said.)
The move into the Canadian dark-pool market is one of Nasdaq's first major strategic moves since it announced a deal to acquire alternative trading-platform provider Chi-X Canada late last year.
Dark pools, sometimes called the "upstairs market," accounted for about 5 per cent of trading by value in August, according to data by the Investment Industry Regulatory Organization of Canada (IIROC).
There are only two players in the market currently: Match Now, the market leader by a country mile, and Liquidnet, a tiny player that only deals with institutional investors. TMX Group Ltd., which is the dominant player in the "lit" market and the operator of the Toronto Stock Exchange and the TSX Venture Exchange, does not have a dark pool.
"It all started with our customers asking for it [a dark pool]," Mr. Kessous said. "We see it as a growth opportunity."
Mr. Kessous said that "lack of competition" in Canada was another factor in Nasdaq's decision to enter the dark-pool market in Canada.
Acknowledging that the dark-pool market is nowhere near the size of the traditional "lit" market, he said Nasdaq is aiming to attain "a few per cent" of market share.
Unlike the lit market, securities in a dark pool are traded anonymously, and often without the services of a sell-side human broker. Large investors often use dark pools to unload large quantities of stock without tipping off other investors. The attraction for using a dark pool is that, in certain instances, investors can find a better price, especially if the trade can be executed over a matter of days, or even weeks.
In terms of the broader lit market, Nasdaq hasn't made a huge splash so far in Canada, apart from rebranding the Chi-X exchanges with the Nasdaq name. It has, however, recruited a number of higher-level former TMX executives, including Tom Kloet, former CEO of TMX, who joined Nasdaq's board early last year. Brenda Hoffman, former group head of technology with TMX, joined Nasdaq in November, 2015.
Nasdaq's two alternative trading platforms, Nasdaq CXC and Nasdaq CX2, currently have about a 26-per-cent share in trading by value, according to IIROC data, versus approximately 56 per cent for TMX's exchanges.