In 2003, CNQ became the first new stock exchange to go live in Canada in some 70 years. Now, it is creating an alternative market for all Canadian equities. Pure Trading is designed to give traders a faster trading environment.

By summer 2006, stock traders in Canada will have Pure Trading – a new, fast option for making electronic trades through a platform that promises the same speed as they now find on a number of US markets. Those traders will have the Canadian Trading and Quotation System Inc. (CNQ) to thank for their speedy alternative.

Being on the cutting edge is nothing new to CNQ. Formed in 2001, CNQ went live in 2003 as the first new
exchange to debut in Canada in more than 70 years. Today, it lists some 50 smaller, emerging companies, using a combination of a central auction market, direct trading and market making.

The exchange has also taken a novel approach to attracting firms to list.

ccording to CNQ President Rob Cook, the CNQ stock exchange has a disclosure-based regulation model that requires companies to post onto the CNQ web site more information than they are required to disclose as public companies. In return, they are not charged the high fees of other Canadian exchanges and do not have to subject all corporate transactions to advance review and approval by the exchange. Now, CNQ is on the verge of launching Pure Trading, a new electronic exchange to trade stocks that already appear on other Canadian markets. Traders will have an option that offers lower fees but, equally as important, they will find an environment that is “friendly to algorithmic traders,” says Cook.

»Traders will find a new environment that is friendly to algorithmic trading.« Rob Cook, President, CNQ

Pure Trading, which is now being tested and may be live by the beginning of July 2006, will offer the type of “throughput, capacity and low latency that is demanded by algorithmic traders who react instantaneously to small moves in stock quotes and trading prices,” he says.

Currently, many Canadian traders who want to maximize their ability to take advantage of algorithmic trading techniques trade on US-based electronic communication networks or other US exchange platforms. Such trading also takes place in Canada, but, says Cook, “the algorithmic players can’t use the same strategies in the Canadian markets that they can in the US, where the latencies are very low and there are multiple venues for execution.”

While Canadian exchanges have had competitors in the form of alternative trading systems and the equivalent of US-style ECNs, Pure Trading’s improved capabilities will further heighten competition.

CNQ and OMX: Targeting new opportunities together

Leading up to its launch in 2003, CNQ used the Horizon trading system from OMX that combines auction-style trades, direct trading and market maker trades. “The Horizon system has performed flawlessly since its inception,” says CNQ President Rob Cook. As it set out to launch a new alternative market for the Canadian market, CNQ recognized the need to offer traders a system that combines high performance and speed with low latency, says Len Schuman of OMX. In addition, the system had to be what Cook calls “Canadian-ized,” so that it would work using a gateway and the STAMP message protocol, a securities protocol found mainly in Canada. CNQ will also provide a FIX gateway and a direct connection through an API.

The challenge:

The solution:

Building on the foundation of the existing Horizon system, OMX helped CNQ develop a faster platform to enable the high-speed trading required by traders using algorithmic techniques.

By Sherree Decovny Photo Getty Images

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