TSE hopes to boost level of unlisted market’s credibility

Following a reluctant takeover of Ontario’s over-the-counter trading system three months ago, The Toronto Stock Exchange (TSE) plans to increase the credibility of the Canadian Dealing Network (CDN) by stepping up surveillance.

But the senior exchange will not go so far as to replace telephone trading with electronic reporting, says Roy Hill, manager of the junior market. In the current economic climate, Hill says spending millions on a new computer system, or any other major changes, is inconceivable.

Rather, the TSE is working on ways to improve the current system so that an automatic comparison can be made between reported trades and the quoted market. This would tackle some of the problems the CDN has had with providing accurate “last sale” figures.

“The (problem) that we must address first is the question of timely trade reporting,” James Gallagher, executive vice-president of the TSE, said in a recent speech to the Joint Industry Compliance Group. “The key to improved market quality, and on the other side of the same coin, improved surveillance, is to provide the users of the market with an accurate last sale.”

Now, although trades are reported throughout the day, a batch trading record does not appear until the following morning. Often, false price quotes slip through the system and are reflected in the final record.

Other than the up-front fee increases introduced when the TSE took the CDN out of the hands of the Ontario Securities Commission in August, very few adjustments have been made to the trading system. Hill said the status quo is unlikely to change, at least in the near term.

“There has been no change in the level of service, and that’s the way we wanted it to be.”

At close to $300 million, the value of trades made on the CDN during the first nine months is almost equal to the amount traded during the same period last year. Volumes have dropped somewhat, from 250 million shares in the first nine months of 1990 to 207 million shares this year.