Jos Schmitt returns to build new Canada exchange

Jos Schmitt is planning a comeback at the helm of a new Canadian exchange

Former Alpha ATS chief Jos Schmitt is planning a new stock exchange for Canada, to be called Aequitas Exchange, which will take on incumbent TMX Group.

The new exchange is currently in discussions with the Ontario Securities Commission about its plans, which include multiple order books, “innovative” approaches to matching priorities and market making, as well as mechanisms to prevent predatory trading behaviour.

Schmitt was dubbed a “competition warrior“, following his role in setting up Alpha Group in November 2008. In the following four years, he took Alpha from ATS to exchange status, with a 22% market share in Canada. The venue targeted itself at retail investors and at segments of the market that felt neglected by the primary exchange group, TMX. Schmitt was particularly critical of the maker-taker pricing model used by exchanges to attract high-frequency traders at the expense of other market segments, and the perceived higher costs of the Toronto Stock Exchange.

However, following the acquisition of both TMX and Alpha Group by the Maple Group, Schmitt left the company in October 2012. Since then, TMX announced that Alpha would be moved onto the TMX Quantum technology platform and serviced by TMX data centres, while its plans for a listings business were quietly shelved. The deal effectively left Chi-X Canada as the only independent trading platform in the country, while market participants fretted about the possibility of monopolistic behaviour by the new group, which also acquired Canada’s equities clearing house CDS. Schmitt’s return will be hailed by many as a new opportunity for competition in the market.

“We are developing a leading edge trading ecosystem that provides effective options to long-term investors who are currently disadvantaged by the dominant market model,” said Schmitt. “We want to facilitate the role of committed market making with clear benefits and responsibilities. We will discourage strategies that undermine market fairness and confidence and we want to offer a viable alternative to the rebate incentives and maker-taker pricing model, which have adversely impacted market quality.”

Since Alpha was acquired by TMX, its share of the market had fallen from 22% to just 9.3% by July 2013. Meanwhile, Chi-X Canada has increased its share to 23.8% over the same period, according to figures provided by Thomson Reuters. The remainder was dominated by TMX.

The OSC has published a consultation on the Aequitas proposal to launch a new exchange, which runs until 27 September. Schmitt urged every player in Canada’s financial markets to make a contribution to the discussion and be heard.

“Today, every player in Canada’s financial markets has an incredible opportunity to impact the future direction and success of Canada’s capital markets,” added Schmitt “We have designed the foundations and are now eager to hear from various participants to ensure that we are building the right solutions. The transformation of our industry and the rebalancing of our public markets begins now.”