The Cboe Global Markets headquarters in Chicago in 2018. The Globe and Mail previously reported that the Canadian Securities Exchange was looking to acquire CBOE Canada, formerly known as the NEO Exchange.Michael Hirtzer/Reuters
Another bidder has emerged for the Cboe Canada stock exchange.
One day after The Globe and Mail reported that the Canadian Securities Exchange was looking to acquire the platform, formerly known as the NEO Exchange, Toronto-based alternative trading system (ATS) operator Tradelogiq Markets Inc. also expressed interest. The Canadian and Australian divisions of Chicago-based Cboe Global Markets Inc. were put up for sale in October.
Laurence Rose, chief executive officer and controlling shareholder of Tradelogiq, said in an interview that combining his company with Cboe Canada would create a stronger rival to the dominant TMX Group Ltd. X-T, which owns the Toronto Stock Exchange and the TSX Venture Exchange.
“The combination of Cboe and Tradelogiq would actually be a more formidable competitor, from a market-share perspective, to the TSX than Cboe and the CSE would be,” Mr. Rose said.
“Tradelogiq is not an exchange, we are an ATS, therefore if we acquired Cboe and became an exchange there would be three exchange competitors and I think that is a better outcome for the market.”
ATS platforms compete to be the venue of choice for the buying and selling of securities, though unlike stock exchanges, they do not directly list those securities.
Allowing the CSE to acquire Cboe Canada would leave the domestic market with just two exchange operators, Mr. Rose said. The CSE, which declined to comment, is looking to acquire both Cboe Canada and Cboe Australia to complement its recent acquisition of the National Stock Exchange of Australia.
Tradelogiq is only interested in Cboe’s Canadian assets, Mr. Rose said. Cboe paid more than US$350-million via two acquisitions – MATCHNow in 2020 and NEO in 2021 – to establish its Canadian operations.
“More competition is better for the market participants and for the regulators. It is a more healthy environment,” Mr. Rose said. “Do you want two companies competing with each other, or would you rather have three? I personally think three is a better outcome for the clients.”
While the vast majority of Canadian equities are listed on the TSX or TSX-V, there are a total of 18 different marketplaces owned by five different companies where those securities can be traded. Small price differences between different marketplaces generally dictate where brokers will go to execute a trade in hopes of getting their clients the best possible price.
Having the best price for a particular security among all 18 marketplaces at any given time is referred to as being “top of book.”
“We all compete with each other to get the banks and the brokers to route as much of their order flow to us so that we have the best chance of being top of book, so that when the client comes in to execute a trade, that it happens on our venue,” Mr. Rose said.
From a market-share perspective, Tradelogiq handles more of Canada’s equity trading volume than the CSE and only slightly less than Cboe.
According to data from the Canadian Investment Regulatory Organization, the CSE controlled 7.5 per cent of trading volume in the Canadian equities market during the three-month period that ended on Sept. 30. Tradelogiq held more than 9 per cent of market share over the same period via its two marketplaces – Omega (7.6 per cent) and Lynx (1.6 per cent) – and Cboe Canada controlled 12.5 per cent.
The TSX and TSX-V were by far the largest players in the space, commanding 31.1 per cent and 16.2 per cent of Canadian equities trading volume, respectively, between early July and late September. TMX also owns the Alpha marketplace, which had a 4.4-per-cent market share during that period and pushed the company’s total share beyond 50 per cent.
When the NEO deal closed in early 2022, Cboe Canada had a market share of more than 16 per cent, but its slice of the Canadian equity trading pie has steadily shrunk since then. That is part of the reason why the company is expected to sell its Canadian assets for significantly less than it paid for them, The Globe has previously reported.
Cboe has also been moving away from its corporate listings and equities trading businesses since Craig Donohue became CEO earlier this year. The company shuttered its Japanese equities business and trading platform in July after failing to find a buyer.
Mr. Rose is a pioneer of electronic trading in Canada. In 2002, he launched the country’s first ATS, a bond trading platform called CollectiveBid Systems Inc., which he sold in 2005 and which continues to operate today as a subsidiary of BGC Group Inc.
He purchased Tradelogiq, then known as Omega Securities, in 2019 after spending more than a decade working at Cantor Fitzgerald. At the time, the company’s market share was roughly 3.5 per cent, he said.
“We have grown our business dramatically over the last six, seven years,” Mr. Rose said. “We are now fortunate to be able to be in a position where we can be a consolidator as opposed to being consolidated.”