Page 16 - CCCA Magazine Summer 2015

{ Feature }

“ Stock exchanges and trading

companies are fraught with
risk potholes. Everything from

reputational to operational risk and
”
ensuring that trading continues.

“We are trying to create a level playing feld for long-term inves-
tors,” says Pavalow, who is in charge of new products. Its trad-
ing policies and trading books are geared to curbing predatory
high-frequency trading practices.
liquidity
Improving liquidity in companies that trade is also one of Aequi-
tas’s goals. Aequitas management believes that many Canadian
companies are taken public too early in their life cycle and before
former CEO of IIROC, recently joined the company as Chair- the market is ready to provide the necessary liquidity support.
man after stepping down from the regulator. The plan is to make it more attractive for market makers to oper-
Aequitas, which offcially launched in March, has big ambi- ate, and provide a more transparent and fair exchange that focus-
tions to grow the capital market pie in Canada, make the mar- es on the interests of long-term retail and institutional investors,
kets more transparent, and level the playing feld for issuers and rather than those who trade shares by the milliseconds.
long-term investors. Aequitas plans to start listing companies on its exchange
later this year. One of its goals is to remove red tape in the list-
Predatory high-FrequenCy trading ing process, making it easier for companies to list and engage
When he announced his plans for a new market in 2013 Schmitt in deals without the rigmarole that they must go through at the
said, “Our objective is to improve the environment that we have TSX to get deals signed off or issue private placements. The goal
today. We want to tackle some of the inappropriate behaviours is to avoid getting involved in the discretion of management
by high-frequency frms. They developed strategies which are not when it comes to deals and offerings.
really favorable or are detrimental to the long-term investor.” “We believe the listing process should not be about second
Predatory high-frequency trading, where traders use tech- guessing management and trying to dive too deeply,” Petlock
nology to game the system, has been the subject of regulatory says. “We have high listing standards. We just don’t feel like
scrutiny at IIROC and exhibits itself in a variety of ways that there’s a need to have a six- to eight-month process where you
negatively impact investors and issuers: hold up an issuer from doing something if they continue to
● Layering: Traders place numerous orders at different price meet your listing standards and there are no red fags.”
points to create an impression of strong buying or selling There are also plans to create an exchange for trading shares in
pressure in order to drive prices up or down, and then they privately held companies, using a centralized and transparent plat-
beneft from related trading strategies. form, which Aequitas calls “an alternative solution for capital raising.”
● Exploratory trading: Traders send in small aggressive or- It falls on Petlock’s shoulders to oversee the legal side of the
ders to obtain more information about market interest in a company’s effort, a job that she welcomes. “I’m the type of per-
stock in order to forecast demand and pricing. son who wants to learn new things and do new things.”
● Arbitrage: It can occur in different ways. Latency arbitrage Petlock says that as a recognized stock exchange, risk is one
is when trading algorithms work the nanosecond differ- of the items that the company is obligated to analyze. Stock ex-
ences in times that different market participants receive data changes and trading companies are fraught with risk potholes.
feeds and essentially front run trades. There is also rebate Everything from reputational to operational risk and ensuring
arbitrage, where trading frms earn rebates from exchanges that trading continues.
for placing orders. Some actually earn more from the rebates “I think in this environment, other than cyber, the buzzword
than they do from their investing prowess. is risk,” Petlock says.

16 CCCA MAGAzinE | SuMMEr 2015 été