Aequitas Innovations and the challenger

It’s the sequel no one was expecting – or perhaps not. The TSX has a challenger – Neo is the first non-TSX owned Canadian exchange.

This week P4Capital examines what Neo is, and what it means for Canadian markets.

Amanda: A little competition is always healthy, and in this week’s round table discussion, P4Capital investigates the competition between the reigning champion the TSX, and the new challenger, Neo.

Jim: Today’s topic is about a need for a non-TSX owned Canadian Exchange. We recently saw that Aequitas just got its go papers, and will be launching shortly.

Archana: I’m of the firm opinion that competition is always healthy. Ontario Securities Commission’s recent approval is definitely a case in point. And I feel it is a huge step in the right direction.

Shaheerah: Back in January they had made a proposal which was rejected by the Ontario Securities Commission, because it had restrictions to access on visible order. So what that means is that investors would be unfairly blocked from equal access. Then they actually had to go back and make some changes to their proposal, and they added some preventative measures to deal with these predatory high frequency trading strategies. So now they’ve added some speed bumps that will slow down the electronic traders. They will have a centralized platform for private securities focused on capital raising for small and medium sized insurers, and they also have fee competition across all the exchange’s offerings.

Jeremy: It seems like there’s benefits for the consumer, I guess the trader in this case, already there’s been talks by the TMX group that they’re going to be matching the speed-bumps that Aequitas is looking to implement here,  to make it a more fair trading platform on their systems too.

Archana: Just responding to what Jeremy just said there, Aequitas Innovations CEO President actually went on record saying that their technology is superior compared to that of the TSX. Essentially the primary distinction that they’re making is the way they would be processing dealings, or introducing these speed bumps as Shaheerah just mentioned, and as well as charging  higher fees, which is primarily directed at the high frequency traders.

Jeremy: So actually since you mentioned the CEO Archana, just thought I’d mentioned that the gentleman’s name here running Aequitas is Jos Schmitt, who was the guy behind Alpha Trading, which was purchased by the TMX group a couple years ago, and which Aequitas seems to be trying to replace. Alpha 2.0 you could say.

Archana:  That’s interesting Jeremy, so what do you think is the future of Aequitas as well if the founder CEO of Aequitas has been in the news before as well starting a Bourse before, which was later acquired by TMX? What do you think might be the future of this new entity?

Jeremy. Well I predict a big pay day one way or the other. Perhaps this will be a viable competitor to the TMX, I think they’re shooting for about 20% of the market share, it could also be a potential take over target somewhere down the line for the TMX group. Either way I think he’s in line to make some dollars here.

Jim: I believe the success of a digital exchange will be based on its technology. One of the things we’re seeing in the marketplace is that regulators are getting into flat databases and real time databases so that they can capture information and report to the exchange that there’s too much advantage to high frequency traders, or not enough protection for our retail investors. And it will be quite interesting to see how Aequitas handles its technology engine as Alpha was basically put together and then, as Jeremy and Archana said, sold to the TMX group. But the advances in technologies over the last eight years have been phenomenal; I’m really going to be quite keen to see if they in fact inject new life into the exchange via technology.

Shaheerah: In a direct quote from the CEO, he says that the plans to have an exchange that uses technology to empower and unlock rather than discriminate and deceive, and that rewards those that capitalize and invest based on sound strategy rather than those that exploit structural loopholes. So their goal now basically is that within four to five years, Aequitas would like to, they’re basically aiming to own 20% of the market share by volume in Canada

Jim: And if Jos Schmitt is able to in fact get fairness and equity into Aequitas, it will most likely gain much more than 20% because as the digital world has exploded and the availability of to market trading is in the hands of retail investors these days, if you have an open and fair exchange your volume should increase, therefore your listings should increase, therefore your ability to expand over boarders should increase as well too.

Jeremy: I want to know how they came up with the name NEO, I didn’t see that coming. Were they watching the Matrix Revolutions or something like that?

Archana: Maybe.

Laughter

Jeremy: Another area of business that this is going to change is that companies are going to have a choice of where to list their IPO in the future. So similar to the situation that you have in the states where you can either go on NASDAQ or the NYSE, there’s different restrictions involved with both. It’s a little easier to get on NASDAQ, and by little I mean much easier. It will be interesting to see if they have different restrictions to get on NEO as they do to get on TSX or TSX venture.

Jim: That is an outstanding point that Jeremy just made. On the back of NEO is the fact that if one looks at exchanges only being 200 years old, coming out of London, the whole purpose was to basically provide equity for merchants if you will, people who were taking risks, and to be able to share in the profits if the risk was avoided. Basically the markets over the last 25 years have formed into a giant casino, and those that had access to the best technology won, see Virtu. So this will be quite interesting, if they put the technology in place to take markets back to their roots of just 200 years ago.

Archana: As Jim pointed out technology is going to be a huge differentiator in this case. I just wanted to stress on the fact that being the talent acquisition manager for the Capital Market space, P4Capital and the group here totally understands what they’re talking about in terms of the right kinds of resources who can make a difference.

Amanda: That was the P4Capital group discussing the differences between the TSX and the new challengerNeo. Want to know more? Check out our website at http://www.planet4it.com Thanks and see you next time.


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