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The screens at the TMX Broadcast Centre in Toronto show the TSX’s closing numbers up 32.42 points on July 11, 2012.

Matthew Sherwood for The Globe and Mail

By bidding for U.S. exchange DirectEdge, TMX Group is making it abundantly clear that it thinks high-speed trading is critical to the future of exchanges.

The debate over the usefulness of high frequency trading is ongoing, but TMX has an insider's view on the market, and it sees just how much the lightning-fast trades are changing the game. It doesn't want to miss out.

The data backs up this view. A new study by the Investment Industry Regulatory Organization of Canada found that HFTs can account for as much as 42 per cent of all Canadian trades. Seeing this growth from the early stages, TMX started developing its Quantum XA servers that allow for trade execution in mere microseconds way back in 2009.

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There's also another angle to this deal. Should TMX secure DirectEdge, the company will take a position in the U.S. market where pretty much all of Canada's biggest companies are traded because of dual-listings. TMX wants to make sure it has a stake in trading south of the border.

Plus, there's been chatter that TMX is looking to create a small cap listings venue in the U.S. Buying an exchange that's already up and running makes this much easier.

If the acquisition goes through, TMX will take ownership of the fourth-largest exchange in the U.S., which currently has a 9.3 per cent market share, according to The Wall Street Journal. Until 2010, DirectEdge was solely an electronic trading platform, but it has since become a full exchange.

A potential purchase price hasn't been disclosed, but the Journal pointed out that DirectEdge was valued at $390-million in 2008. Its market share has only increased since then.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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