On this day three years ago we launched the NEO Exchange with a singular focus on doing what is right for investors and capital raising companies. How have we done so far? While its fair to say we have only scratched the surface, we are proud of the positive impact we have had on the Canadian equity markets. We have seen TSX lower its listing fees for both ETFs and corporates in a response to the competition we have brought to the senior listings space, as well as a clear shift in their messaging in an effort to align with the natural investor. Most significant, however, is the feedback we get from issuers, dealers and investors alike that acknowledges a change in attitude from the incumbent exchange that has resulted in better client service. That is how competition makes markets better for everyone.
As you will see below, the data clearly shows that our solutions are working, and those results are also reflected in our accomplishments to date:
– We are close to 10% of all Canadian equity trading (over 6%, excluding block trades)
– We are close to 20% of all Canadian ETF trading (over 10%, excluding block trades)
– We have over 60 NEO-listed ETF and closed-end fund symbols from 9 different issuers, including several migrations from the TSX
– We have welcomed our first public companies, including a cross-listing with NYSE, and there have already been announcements about more to come
(REAL) TRADING SOLUTIONS DESIGNED FOR THE NATURAL INVESTOR
From day one, one of the key priorities has been our innovative trading solutions designed to level the playing field for the natural investor, by curbing predatory trading practices and reducing unnecessary intermediation. The results are in and they are stellar!
Reduced intermediation: Over 80% of our volume is from natural investors
The concept of reducing unnecessary intermediation is simple: whenever possible, let natural investors trade with each other and let market makers be the ones filling in liquidity, as required. If you are taking liquidity on NEO, almost 80% of the time you will be trading with a natural investor. If you are providing liquidity, over 95% of the time there is a natural investor on the other side of your trade.
Another common metric used by market participants to judge the types of flow on a venue is the order-to-trade ratio. Natural investors on NEO had an order-to-trade ratio of less than 101for the month of January 2018; consider that statistic in combination with the fact that you will be trading with a natural investor over 80% of the time when you take liquidity. Yet another sign of a healthy, non-toxic market. We believe we are unique in this regard – wouldnt these be great statistics for all marketplaces to share?
Reliable liquidity:Over 60% of all orders have been resting in our books for at least 10 seconds before they trade
What we call order duration2may seem like an obscure data point, but it is a very important one. In todays electronic markets 10 seconds is an eternity and this demonstrates that the liquidity we show is real and reliable or, in other words, accessible. This result is not a surprise, given that natural investors make up over 85% of our volume. Liquidity on NEO is not about flashing orders trying to attract investors into trading patterns that can be harmful to them. If you wonder how our 10 seconds compare to other marketplaces in Canada, you are not alone – so do we.
A CONTINUED EVOLUTION FOR OUR TRADING SOLUTIONS
Although we have made great strides toward achieving our goal of a level playing field in trading, we are not done yet. Later this week we will publish a proposal for comment regarding changes to our trading solutions, including fine tuning our matching priorities. With three years under our belt, we have identified a number of improvements to our trading solutions to further benefit natural investors and continue to reduce unnecessary intermediation.
We will also introduce the NEO dark pool (called NEO-D). While a dark pool was part of our original plan, at the time of our launch we decided to postpone it and focus on our displayed venues first. Based on the evolution of the markets since then, we have also evolved in our thinking around the scope and believe we will bring something new to the market that is a truly differentiated solution. A solution that is once again focused on natural investors.
Stay tuned.
Joacim Wiklander is Chief Business Officer at NEO Exchange
