10.11.2016
By John D'Antona

Nasdaq’s Canadian Dark Pool Nears Launch

The Great North is about to get another taste of dark trading from U.S. exchange operator Nasdaq.

In a move designed to showcase its technological prowess, increase equity market share and cater to the buy-side trader’s dual need for liquidity and anonymity, Nasdaq plans to launch its Canadian dark pool, Nasdaq CXC, on October 31. The pool, which marks the first rollout of Nasdaq’s technology platform in Canada is being met with enthusiasm by rival ATS operators and the buy side.

There are currently only three dark pools in operation in Canada. And unlike in the highly fragmented U.S. equity market structure, there is room for this new venue.

“Launching a new marketplace offers Nasdaq a low-risk evaluation of a new Canadian platform and data center,” said Bryan Blake, chief executive officer of ITG’s MatchNow dark pool in Canada. “There is room for innovation and growth in dark trading in Canada.”

Noting the nascent state of dark trading in Canada, he added that that makes the region a prime place for expansion. “Canadian regulators have a progressive view on dark trading and have advocated for fair access, meaningful price improvement and marketplace disclosure,” Blake added. “It’s a very different landscape than the U.S., where dark trading is scattered across 30 venues and represents more than 30% of volume.”

Another senior executive at a rival ATS operator in Canada told Markets Media that he too welcomes Nasdaq’s arrival. And that comes in the face of the fact that for its first four months of operation, Nasdaq CXC will offer users free trading. After that trial or initial period, it is unclear what pricing the operator will employ – either maker-taker, taker-maker or some other scheme.

“Nasdaq is our competitor but we are lit and protected and they are dark and, subsequently, unprotected,” the senior executive said. “We do not foresee any material negative impact on the lit space as a result of the launch. It is always good to have competitive pressure, especially when the current leading venue charges a very wide spread. CXD promises to be more cost-effective.”

However, the senior executive reminded that dark pool trading is a much smaller component of the equity trading dynamic in the Great White North – as market structure and regulation dissuade traders from executing orders on unlit venues. Exchanges are the preferred and most widely accepted venues to trade on, grabbing upwards of 93% of total equity trading volume.

So will the buy-side trade on CXC?

“It looks like the buy side doesn’t really trade in the dark much since ICX and Liquidnet cater to them and they don’t seem to get much flow,” the executive said. “I think these two pools typically only trade a few thousand shares a day with the odd exceptional big block.”

Emails to Liquidnet and ICX weren’t returned by press time.  

But both ITG’s Blake and the senior executive were confident that free or for a fee, the buy-side and brokers would hook up to Nasdaq CXC. “Most big firms are planning to connect to the new Nasdaq dark pool with the expectation that they will save on execution costs,” the senior executive said.

Dark pools are designed to help natural investors reduce information leakage, and source liquidity at a better price, chimed ITG’s Blake.   

“Bay Street is a small place and we welcome healthy competition, innovation and differentiation. MatchNow has a successful history of differentiating itself and partnering with the industry,” said Blake.

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