TORONTO -- Royal Bank of Canada (TSX:RY), and several major financial companies are planning to set up a new stock market they say will provide meaningful competition to TMX Group (TSX:X).
The group behind Aequitas Innovations Inc. says it's in the midst of filing for regulatory approval at the end of this year and, if given the green light, the exchange could be up and running by late 2014.
The plan has been in the works since last fall.
In addition to RBC, which is Canada's largest commercial bank, the project is being backed by a group of major financial players including mutual fund operators CI Investments Inc. (TSX:CIX) and IGM Financial Inc. (TSX:IGM), Canadian pension fund PSP Investments and the U.K.-based Barclays.
Aequitas president and chief executive Jos Schmitt said the venture would provide investors a viable alternative to the Toronto Stock Exchange and other markets owned by TMX Group, which is controlled by a different group of banks, pension funds and financial services companies.
"The industry is facing a lot of challenges," Schmitt said Tuesday.
"Activity is lower than what it used to be, costs are higher. We really wanted to rebuild confidence in the market, so going forward, the market and the business can grow," he added.
"As marketplaces cater to volume, they can damage the quality of execution for those who actually want to hold something at the end of the day," said Scott Penman, vice-chairman of Aequitas and executive vice-president and chief investment officer for Investors Group, a wholly owned division of IGM Financial Ltd. "A new and different exchange that serves long-term investors, one that strikes the right balance between liquidity, price discovery and cost efficiency, is very exciting for us."
Schmitt said the appeal of Aequitas, which is named after the Latin word for equality and fairness, will be its competitive fee structure for investors and particularly, smaller to mid-sized companies.
In particular, it is promising to promote "true and reliable liquidity" to traditional investors it says are at a disadvantage with current markets that cater to high-volume trading activities to generate revenue.
High-frequency trading (HFT) has been blamed for putting artificial volatility into the markets by using computers to engage in behaviours such as exploratory trading, where small orders are made to see where big traders go.
"What we really want the investors to understand is that we bring quality. That will definitely translate itself into a reduction of intraday volatility," Schmitt said.
Aequitas makes a distinction between "predatory" and other high-frequency trading activities, saying some types impair small-scale retail investors and institutional investors representing pension plans and mutual funds.
This announcement comes at a time when Canada's largest stock exchange operator reported a drop in new listings, financings and trade volumes in its latest quarter.
TMX Group said it had a first-quarter net profit of $37.8 million. Revenues were $172.2 million for the three months ended March 31.
In the same 2012 period, the TMX reported a net loss of $4.4 million, but the results were not comparable because of a change in ownership late last year and the consolidation of various platforms.
-- The Canadian Press