CNQ to launch new market

The Canadian Trading and Quotation System (CNQ) plans to launch an alternative market sometime in early 2006 to provide investors with another means by which to invest in Toronto Stock Exchange-listed companies.

The CNQ’s new exchange would be completely separate from its existing list of small-capitalization companies, and its application for an alternative market is awaiting approval from the Ontario Securities Commission.

The CNQ would essentially borrow a concept established in the U.S. via the Electronic Communications Networks (ECNs). These are private, automated electronic networks for placing/matching orders and setting prices for trades on a given securities exchange — without any intervention from middlemen, like a broker, for example.

ECNs were established on the Nasdaq in 1997 and now account for roughly 30% of its trades. The networks are also used on the New York Stock Exchange.

The CNQ’s alternative market would employ a similar network here in Canada, effectively competing with the TSX. The TSX would still list stocks and trade them, whereas the alternative market would offer trading only.

“If you go to a brokerage firm, what do they do? They put the trade up on the TSX,” explains CNQ President Robert Cook. “What we’re doing is giving them a choice, put the trade up on the TSX or put the trade on CNQ’s alternative market.”

He adds, “It’s going to be an improvement to the overall Canadian equity market and there’s a lot of resource companies that trade.”

Cook says more competition will ultimately lower the cost of trading, and that the electronic network will increase the speed at which trades can be made. The downside is that the alternative market, at least initially, won’t offer the range of trading offered on the TSX.

It’s not yet known how many companies will trade on the alternative market in the beginning but it is likely to launch with somewhere in the neighbourhood of 200 companies. The goal, however, is to offer trading in every company available on the TSX.

“The comment that (the TSX) put in the Globe was that they welcome competition,” Cook says.

The stage was set for this in December 2001 when the Canadian securities administrators enacted what’s known as the National Marketplace Rules, which provide a regulatory framework for competition.

Cook says the privately run CNQ is “doing fine” but adds that, “we’re not making pots of money.” He hopes the alternative market will make his company profitable.

The CNQ is Canada’s newest stock exchange and is designed to address the needs of smaller companies and their investors. The CNQ has 20 other dealers approved for direct access and about 20 others entering orders through correspondence.

The CNQ’s alternative market application is available at www.cnq.ca.