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2.4.4 Alternative Trading Systems

Learn about Alternative Trading Systems (ATS) in the Canadian financial markets, covering electronic marketplaces for equity and fixed-income markets.

2.4.4 Alternative Trading Systems

Introduction to Alternative Trading Systems

Alternative Trading Systems (ATS) are electronic marketplaces that facilitate automated trade matching and execution for both the equity and fixed-income markets. Unlike traditional exchanges, ATSs provide a parallel venue with the potential for increased trading efficiency and reduced costs.

Equity Electronic Trading Systems

Role and Functionality

In equity markets, ATSs offer automated trade matching and execution services that were previously the exclusive domain of stock exchanges. Recognized by the Canadian Securities Administrators, these systems can compete with both traditional exchanges and other ATSs, broadening the range of trading options for participants. Nevertheless, an ATS must be registered as an investment dealer and be a member of a self-regulatory organization.

Regulatory Scope

Although ATSs provide many of the same services as traditional exchanges, they do face certain limitations. For instance, while an ATS can trade securities listed on traditional exchanges, it does not have the authority to list securities itself.

Fixed-Income Electronic Trading Systems

Overview

In Canada, the landscape of fixed-income markets is largely dominated by dealer markets, with a few exceptions. Various electronic trading systems facilitate this market, including:

  • CanDeal: Operated by the TMX Group and recognized as both a debt ATS and an investment dealer. It offers institutional investors access to government securities and money market instruments.
  • CBID and CBID Institutional: CBID operates two marketplaces—the retail marketplace is for registered dealers acting on behalf of retail clients, while the institutional marketplace serves registered dealers, institutional investors, governments, and pension funds.
  • MarketAxess: Provides a trading platform and market data for corporate bonds and a variety of fixed-income instruments. Operational in Ontario and Quebec, MarketAxess is a member of IIROC.
  • CanPX: A joint venture between investment dealers and inter-dealer brokers, CanPX presents real-time bid-offer quotations for Government of Canada bonds and Treasury bills, with price, yield, and volume data inputs from participating dealers.

Auction and Dealer Markets

Alternative trading systems and traditional markets exhibit distinct features. To assess your understanding, consider engaging with the provided online learning activities.

Key Terms & Definitions

To consolidate your knowledge, attempt to identify the following key terms and their corresponding definitions from this chapter:

  • Alternative Trading Systems (ATS): Electronic platforms that facilitate automatic trade matching and execution.
  • CanDeal: A fixed-income electronic trading system operated by TMX Group for institutional investors.
  • CBID: An ATS providing distinct markets for retail and institutional fixed-income trading.
  • MarketAxess: A platform offering market data and competitive pricing for various fixed-income securities.
  • CanPX: A composite display system for real-time trading data of Canadian government bonds and Treasury bills.

Summary

  • ATSs provide increased trading efficiency and options in equity and fixed-income markets.
  • Unlike traditional exchanges, ATSs must register as investment dealers but cannot list securities.
  • Canada boasts multiple ATS for fixed-income markets such as CanDeal, CBID, and MarketAxess, offering a range of trading services.

FAQs

What are ATSs?

  • ATSs are electronic platforms that facilitate the automated matching and execution of trades in both equity and fixed-income markets.

Can ATSs list their own securities?

  • No, ATSs can trade securities listed on traditional exchanges but cannot list securities themselves.

What are some examples of fixed-income ATSs in Canada?

  • Examples include CanDeal, CBID, MarketAxess, and CanPX.

Charts and Diagrams: Equity and Fixed-Income Trading Systems

    graph TD;
	    A[Equity Trading Systems] -->|Automated Matching| B[Alternative Trading Systems]
	    B --> C[Registered as Investment Dealer]
	    C --> D[Can Trade Listed Securities]
	
	    E[Fixed-Income Trading Systems] -->|Automated Trading| F[CanDeal]
	    E --> G[MarketAxess]
	    E --> H[CBID]
	    E --> I[CBID Institutional]
	    E --> J[CanPX]

By engaging with both equity and fixed-income market structures, you gain a comprehensive understanding of the Canadian financial landscape.


📚✨ Quiz Time! ✨📚

🧐 Assess and Solidify Your Understanding

Welcome to the Knowledge Checkpoint! You’ll find 10 carefully curated quizzes designed to reinforce the key concepts covered. These questions will help you gauge your grasp of the material, identify areas that need further review, and ensure you’re on the right track towards mastering the content for the Canadian Securities certification exams. Take your time, think critically, and use these quizzes as a tool to enhance your learning journey. 📘✨

Good luck! 🍀💪

## Which of the following is true about Alternative Trading Systems (ATS) in Canada? - [ ] ATSs can list their own securities - [x] ATSs provide automated matching and execution of trades - [ ] ATSs do not require registration as investment dealers - [ ] ATSs serve only equity markets > **Explanation:** ATSs provide automated matching and execution of trades and must be registered as investment dealers. They cannot list their own securities. ## Which organization must an ATS be a member of to operate in Canada? - [ ] Toronto Stock Exchange (TSX) - [ ] Bank of Canada - [ ] Office of the Superintendent of Financial Institutions (OSFI) - [x] Self-Regulatory Organization (SRO) > **Explanation:** An ATS must be registered as an investment dealer and a member of a self-regulatory organization (SRO). ## What is a significant limitation of ATSs compared to traditional exchanges like the TSX? - [ ] ATSs have lower trading volume - [ ] ATSs can only trade fixed-income securities - [x] ATSs cannot list securities - [ ] ATSs are not regulated > **Explanation:** ATSs can trade securities listed on traditional exchanges, but they cannot list securities themselves. ## Which of the following fixed-income electronic trading systems is a joint venture between Canada’s six largest bank-owned investment dealers? - [ ] MarketAxess - [ ] CanPX - [x] CanDeal - [ ] CBID > **Explanation:** CanDeal is a joint venture between Canada’s six largest bank-owned investment dealers. ## Which fixed-income ATS operates both retail and institutional marketplaces? - [x] CBID - [ ] CanDeal - [ ] MarketAxess - [ ] CanPX > **Explanation:** CBID operates two distinct marketplaces: one for retail and one for institutional investors. ## Which fixed-income trading system provides real-time bid and offer quotations for Government of Canada bonds and Treasury bills? - [ ] MarketAxess - [ ] CBID - [x] CanPX - [ ] CanDeal > **Explanation:** CanPX provides a composite display of real-time bid and offer quotations for Government of Canada bonds and Treasury bills. ## Which fixed-income electronic trading system offers multi-dealer competitive pricing for corporate bonds? - [x] MarketAxess - [ ] CanDeal - [ ] CanPX - [ ] CBID > **Explanation:** MarketAxess provides market data and multi-dealer competitive pricing for corporate bonds and other fixed-income instruments. ## What type of instruments do institutional investors have access to through CanDeal? - [ ] Equities only - [ ] Corporate bonds only - [x] Government securities and money market instruments - [ ] Derivatives only > **Explanation:** CanDeal offers institutional investors access to government securities and money market instruments. ## Which body regulates MarketAxess in Ontario and Quebec? - [ ] Toronto Stock Exchange (TSX) - [ ] Bank of Canada - [ ] Office of the Superintendent of Financial Institutions (OSFI) - [x] Investment Industry Regulatory Organization of Canada (IIROC) > **Explanation:** MarketAxess is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and operates in Ontario and Quebec. ## Which feature is common between traditional exchanges and ATSs in Canada? - [ ] Both can list securities - [ ] Both operate only in the equity markets - [x] Both are subject to regulatory filings - [ ] Neither provides automated trading > **Explanation:** Both traditional exchanges and ATSs are subject to regulatory filings and provide similar trading services.

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