CANADA: TSX INC Notice of Proposed Amendments for Enhancements to Dark Trading Functionality

TSX is seeking to introduce enhancements to its current on-book dark offering in response to customer demand, in recognition of the continued evolution and growth of dark trading in Canada, and to remain competitive with the offerings of other marketplaces.

At present, TSX’s on-book dark functionality generally consists of dark limit orders, dark mid-point orders, and the option to include a ‘Minimum Quantity’ condition. After reviewing the offerings of other marketplaces and consulting with various stakeholders, we are proposing enhancements to our on-book dark functionality which are intended to better accommodate the range of dark strategies employed by TSX Participating Organizations and their clients, and to better facilitate integration of TSX into dealers’ multi-venue dark routing strategies.

1) Dark pegged order types

TSX will add dark pegged order types in order to accommodate a wider range of dark strategies than is currently afforded by TSX’s existing dark offering.

2) Seek Dark Liquidity only capability

TSX will add a ‘Seek Dark Liquidity’ (SDL) feature for use only with orders marked as IOC or FOK. The SDL feature will ensure that an incoming active order will execute only against resting orders that are dark. This feature will facilitate integration of TSX on-book dark into dealers’ multi-venue dark routing strategies where attempting to access dark only or when sweeping dark before lit.

SDL can be set by participants with either of the two following options:

• Option 1 – Trade against dark resting orders at prices up to and including one tick inside the opposite side Protected NBBO (or the order’s limit price if less aggressive).
• Option 2 – Trade against dark resting orders at prices up to and including the opposite-side Protected NBBO (or the order’s limit price if less aggressive).

3) Minimum Quantity and Minimum Interaction Size

Minimum Quantity
TSX is modifying the current Minimum Quantity (MinQty) functionality to make it more consistent with the similar feature offered by other markets, and to address participant feedback about the usability and outcomes via the current functionality.
The existing MinQty functionality will be modified in the following ways:

• MinQty will be available for use with any dark order – specifically pegs, dark limit orders and SDL orders. (MinQty is currently only available for use with dark mid-point orders.)
• The current minimum 20 board lot condition applicable to MinQty usage will be removed.
• The priority benefit currently provided to a resting dark mid-point satisfying the MinQty usage condition will be removed. A dark order with a MinQty restriction will no longer have automatic priority over another resting dark order at the same price level.

MinQty will continue to be enforced on both active and passive fills. When enforced on active fills, MinQty determines the minimum aggregate volume that must be filled (regardless of the size of each individual fill) in order to execute actively. When enforced on passive fills, MinQty allows the resting order to be filled against a contra-side incoming order if the resting order will receive an execution of at least the MinQty size condition.

4) Iceberg enhancements

Random refresh size for displayed quantity

TSX will provide additional means for iceberg users to obscure the presence of their iceberg order by providing an option to randomize the refresh size for the displayed quantity within a specified range.

To implement the Minimum Quantity changes above, certain amendments to the TSX Rule Book are required:

• remove the definition of ‘Minimum Quantity’ (which imposes a minimum size restriction); and
• remove the current priority allocation benefit for dark orders with a minimum quantity.

The proposed changes and related rule amendments are expected to become effective in Q3 2017.

Click on the link above for further details.