TMX Group has announced the integration of two new on-book dark order types—Dark Mid-point and Dark Limit Orders—into the existing order books on Toronto Stock Exchange and TSX Venture Exchange.
Dark orders allow institutional traders to place large buy and sell orders while limiting their impact on the price of the security they are trading.
“TMX Group is pleased to offer our customers additional trade execution choices with these two order types,” said Robert Fotheringham, senior vice-president, equities trading, TMX Group. “We are certain that market participants will benefit from the integration of dark liquidity with Canada’s most extensive displayed order book.”
The new non-displayed order types interact and trade with both visible and other non-displayed orders. The dark order types are initially being offered on a few TSX and TSXV symbols, and will be gradually introduced for all symbols in a phased approach.
The exchange operator claims the new dark orders benefit those trading on the TSX/TSXV visible book, as they will “significantly reduce execution costs, receive price improvement, and benefit from efficiencies in accessing both dark and visible liquidity through a single destination and transaction.”
Canadian regulators take a dim view of dark trading, however. On Nov.19, 2010, the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) published a joint position paper entitled Dark Liquidity in the Canadian Market (position paper 23-405).
“The proposed changes will promote transparency and price discovery and enhance fair and equal access to liquidity for all investors, while recognizing the role that dark pools play in facilitating the execution of large orders,” said Susan Wolburgh Jenah, president and CEO of IIROC.
The regulators propose that only orders that meet a minimum size threshold be exempt from the pre-trade transparency requirements imposed on marketplaces in Canada. The CSA and IIROC also recommend that “meaningful price improvement” be required in certain circumstances and that visible orders should be executed before dark orders at the same price on the same marketplace.
“The recommendations aim to strike an appropriate balance between promoting marketplace competition and maintaining the quality of our markets,” said Jean St. Gelais, chair of the CSA and president and CEO of the Autorité des marchés financiers (Québec). “We are proactively establishing a framework that fosters development of dark liquidity without negative consequences to market integrity.”