Dark Trading Functionality Enhancements Proposed by the TSX

May 11, 2017

Enhancements to the Toronto Stock Exchange’s on-book dark trading functionality were proposed by the TSX on April 27, 2017 and are open for comment before May 29, 2017. Currently, the TSX’s on-book functionality consists of dark limit orders, dark mid-point orders and the option to include a “minimum quantity” condition. In a dark market, orders are not displayed unless and until an execution occurs. In a lit market, orders as well as executions are displayed. Lit markets may also include dark order types or partly dark order types (such as “iceberg orders” where only a small portion of a larger volume is displayed). Dark or partly dark order types are used by people who do not want their orders fully displayed. For example, a very large sell order could lead to price suppression, including due to its supply and demand impact.

If adopted, the proposed enhancements and amendments to the TSX Rule Book would include:

  • If adopted, the proposed enhancements and amendments to the TSX Rule Book would include: The addition of certain dark pegged order types (primary peg, market peg, minimum price improvement peg);
     
  • The addition of a “Seek Dark Liquidity” feature for use only with orders marked Immediate or Cancel (IOC) or Fill or Kill (FOK);
     
  • Modification of the current Minimum Quantity functionality to be more consistent with other markets and the addition of a new feature called Minimum Interaction Size intended to address participant concerns around potential information leakage when executing against small orders on a dark basis; and
     
  • The addition of an option to randomize the refresh size for the displayed quantity within a specified range for iceberg users to obscure the presence of their iceberg order.

 The proposal is being introduced (i) in response to customer demand; (ii) in recognition of the continued evolution and growth of dark trading in Canada; and (iii) to remain competitive with the offerings in other marketplaces.  These features are generally available on other Canadian marketplaces or represent minor modifications.

For further information, please see TSX Equities Trading Notice 2017-012 - TSX Equities Proposes Changes to Dark Trading and Opening Auction Functionality (April 27, 2017) and TSX Inc. Notice of Proposed Amendments and Request for Comments Enhancements to Dark Trading Functionality (April 27, 2017).

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