September 22, 2016
A. DESCRIPTION OF THE PROPOSED AMENDMENTS
CNSX Markets Inc., (the “CSE” or “Canadian Securities Exchange”) has announced plans to implement new functionality and features with the launch of its new trading system in October 2016. The following is a description of the proposed changes.
Peg orders – Market Peg and Mid-Point Peg
Market pegs are buy/sell orders “pegged” to one trading increment away from the contra-side of the consolidated market National Best Bid and Offer (“NBBO”).
Mid-point pegs are buy/sell orders pegged to the midpoint of the consolidated market NBBO.
Peg orders can trade at the half-cent increment, and the execution price will be recalculated as the NBBO changes, subject to any limit price on the order.
Peg orders are not displayed in the book or disseminated publicly but are sent to the IIROC Market Regulation feed upon entry or trade. Changes in the price of the order resulting from changes in the NBBO will not be provided to the IIROC Market Regulation Feed.
Market Maker Participation
Market Maker Participation is an optional feature that enables the Market Maker on their stock of responsibility to auto trade up to 40% of the boardlot volume of incoming guaranteed minimum fill (“GMF”) eligible orders at the NBBO that are under the maximum participation volume amount set on the stock.
B. EXPECTED IMPLEMENTATION DATE
The new trading engine will be launched October 31, 2016. Peg orders and Market Maker participation will be implemented immediately following OSC approval but no earlier than October 31, 2016.
C. RATIONALE AND SUPPORTING ANALYSIS
Peg orders – Mid Point and Market Peg
The CSE is offering these new order types in response to customer demand, and to remain competitive with other marketplaces in Canada that have offered these order types for many years. These new order types will improve liquidity and offer price improvement opportunities to the benefit all market participants.
The use of these order types is optional for participants.
Market Maker Participation
The CSE is proposing to further enhance the Market Making programme we launched in the fall of 2015. The new functionality is based on consultation with existing CSE Market Makers and industry participants. The benefits of the proposed improvements remain consistent with the exchange’s original objectives:
This enhancement to the programme is optional for Market Makers.
D. EXPECTED IMPACT
The proposed additional functionality is being implemented in response to customer demand, and to remain competitive with the offerings of other market places. The new features will encourage greater liquidity to the benefit of all market participants and will provide them with the opportunity to manage their costs.
E. COMPLIANCE WITH ONTARIO SECURITIES LAW
There will be no impact on the CSE’s compliance with Ontario securities law. The changes do not alter any of the requirements for fair access or the maintenance of fair and orderly markets.
F. CONSULTATION
The CSE has consulted with a number of dealers and industry stakeholders and considered the feedback received during informal dialogue.
G. TECHNOLOGY CHANGES
Peg orders – Market Peg and Mid-Point Peg
Clients already support these features on other Canadian marketplaces and therefore we do not anticipate there to be a material effort.
Market Maker Participation
The use of the enhanced programme is optional to Market Makers. Participation has been a feature on the Toronto Stock Exchange for many years and therefore we do not anticipate there to be a material effort.
H. OTHER MARKETS OR JURISDICTIONS
The proposed new functionality already exists in Canada and is currently provided by one or more marketplaces. The participation feature is more restrictive, as Market Makers on the TSX may participate with any order with a volume less than or equal to the Minimum Guaranteed Fill (“MGF”) size, regardless of whether the order is MGF eligible.
K. COMMENTS
Submit comments on the proposed amendments no later than October 24, 2016 to:
Mark Faulkner
Vice President, Listings and Regulation
CNSX Markets Inc.
220 Bay Street, 9th Floor
Toronto, ON, M5J 2W4
Fax: 416.572.4160
Email: Mark.Faulkner@thecse.com
Market Regulation Branch
Ontario Securities Commission
20 Queen Street West, 20th Floor
Toronto, ON, M5H 3S8
Fax: 416.595.8940
Email: marketregulation@osc.gov.on.ca