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Mar 7, 2017

Canada’s Market Data Problem

Urging Regulators to tackle the issue

Canada's market data problem – the widespread lack of the full picture for TSX and TSX-V listed securities – is mind-boggling. If this problem is not known to you, you're not the only one in that situation. For some reason, it is not top of mind for the industry or for regulators and no one wants to talk about it, while the consequences for Canadian investors and public issuers are real. You can find a good overview of what that problem is and why it affects investors and issuers by clicking here.

Market fragmentation in Canada continues to increase and the market share of the Toronto Stock Exchange (TSX) in trading its own listed securities has substantially decreased and continues to decline due to increased competition from other Canadian trading venues. Reliance on TSX and TSX Venture Exchange (TSX-V) market data only – which is the situation today for most retail investors and investment advisors – to represent the current market for a TSX or TSX-V listed security was practical when they were the only trading venues in town. Now there are 12 other trading venues in Canada that, on average, account for approximately 65 per cent of all ETF trading and 40 per cent of all trading in TSX and TSX-V listed companies.

The consequences of this situation are upsetting:

  • The least market structure savvy market participants are exposed to risks of uninformed investment decisions and lesser quality trading executions;
  • A disservice is being done to TSX and TSX-V listed companies and investment products that cannot benefit from all the trading activity in their listed securities because it is not fully visible to investors;
  • Canadian investors are exposed to a single point of failure if the data they receive from the TSX or TSX-V has a service outage; and
  • On top of all of the above, the Canadian securities regulators’ intention of encouraging meaningful competition amongst Canadian marketplaces is not fully achieved.

What Canada needs is a solution similar to what is in place in the United States: mandated access to real time top-of-book consolidated market data for retail investors and investment advisors.

The Canadian Securities Administrators (CSA), representing our various provincial securities regulators, have analyzed the Canadian market data issue from a cost perspective and implemented initial solutions to prevent these costs from becoming even more egregious than what they are today. While more needs to be done to bring the costs down, the CSA initiatives have neither analyzed nor addressed a much more fundamental issue: the vast majority of retail investors and investment advisors do not have access to a full set of market data information, and many of them are not even aware of the fact that they only have a partial view.

While I am encouraged by some of the progress made to date, NEO and I will not stop pressing for a solution to the Canadian market data problem in the coming days, months and, if needed, years. We need a comprehensive solution that will address the issues our market, our investors and our public companies face.

That is why we are urging the Canadian securities regulators to mandate access to real time top-of-book consolidated market data for all investors, just like the Securities Exchange Commission did in the United States.

Some may wonder why we are doing this, what is in it for NEO? Let me be very clear about that: we have no financial incentive to do so. In our letter to the CSA, where we are urging them to take action and are explaining why action is needed, we also indicated that we would be very willing to hand-over to an independent third-party, such as the Investment Industry Regulatory Organization of Canada, a solution that we designed and that could tackle the issue. Our mandate is to make Canadian markets better for investors and public issuers, which comes with solutions we operate but also with advocacy when regulatory intervention is required.

To get the perspective on the matter from a public issuer not affiliated with NEO, read Som Seif’s comments in today’s The Globe and Mail article. Som Seif is the CEO at Purpose Investments Inc., a Toronto-based investment firm with $2.8-billion in assets that offers ETFs.

More information is available in the press release we issued today and the letter we sent to the CSA.

It is 2017, we are living in the Information Age but when it comes to seeing Canadian TSX and TSX-V market data, we are still living in the Dark Ages. You can help us with making sure that this market data problem gets the attention it deserves by making your views known on our website www.marketdataforall.com