The Toronto Stock Exchange's (TSE) plan to introduce an electronic call
market could end up pitting traders and institutional investors against each
other, rather than boosting market liquidity as planned. Institutional investors
support the TSE's plan, arguing that electronic call markets make trading of
stock fairer, more transparent, and less expensive (However, some traders are
less enthusiastic about the TSE's plan for a call market, and have threatened
to treat it as a competitor and-or a market of last resort). The TSE is
negotiating with OptiMark Technologies Inc. to set up a call market on the
exchange sometime after 2000. The exchange is hoping the new trading
system will recapture the trading of big blocks of shares that institutional
investors and their dealers now trade privately, in what is called the "upstairs
market". Institutions increasingly choose the upstairs market over the TSE's
publicly visible auction to prevent their trading strategy from leaking out ahead
of a transaction and undermining the price they would otherwise get.
Meanwhile in Montreal : Versus Technologies Inc., under the auspices of the
Montreal Exchange, has been operating an electronic call market for
institutional investors and dealers since January 1998. However, it hasn't
attracted much interest from either institutions or dealers, though the two sides
give different reasons for its lack of success. The Ontario Teachers Pension
Plan Board, traces Versus' lack of success on its technological limitations.
The call market couldn't execute a trade at the midway point of the bid and
offer price, which discouraged investors and dealers from using the system.
Quite a few shares went into the system at first, then apparent frustration from
a lack of hits resulted in a lack of liquidity. Versus acknowleges its call market
has fallen short of expectations. They have been doing between two and four
matches a week, which is about 1/25 of what they thought we would be doing.
Undaunted, Versus is working on a more technologically advanced alternative
trading system, which it plans to introduce soon. To generate liquidity, Versus
might offer economic incentives to users of its network. Versus indicated it
might also offer ownership in the new network to its constituents in exchange
for a certain number of orders from the constituents. Versus' experience
highlights why there could be more of an incentive for a dealer to continue to
trade blocks of shares in the upstairs market instead of using an electronic call
market. Dealers will not take a 100,000-share order and put it in the call
market. Instead they will continue to use the upstairs market which ensures
that the firm gets the full commission for a trade by acting for both the buyer
and the seller.
forwardlook.com
You can also get information on the OSC web site;
osc.gov.on.ca
Regards,
MArc |
