Toronto Exchange Toys With Public Ownership, Access

The Toronto Stock Exchange (TSE) hopes a makeover in governance and systems will slow eroding market share--as well as the increasing in-fighting between members and some exchange officials.A plan hatched last year calls for the demutualization of the exchange and the expansion of electronic capabilities to eventually allow investors direct access to the exchange's trading systems."With electronic

The Toronto Stock Exchange (TSE) hopes a makeover in governance and systems will slow eroding market share--as well as the increasing in-fighting between members and some exchange officials.

A plan hatched last year calls for the demutualization of the exchange and the expansion of electronic capabilities to eventually allow investors direct access to the exchange's trading systems.

"With electronic and Internet trading systems virtually everywhere, there's no reason why institutional and retail investors shouldn't get direct access to trading systems without having to go through a dealer," says TSE President Rowland Fleming.

But "going through dealers" is exactly how many member firms earn revenue.

"As far as we are concerned, they are giving away the store. Our business is providing access to exchanges," says the president of one large Toronto-based brokerage firm.

Under the proposed plan, the exchange would expand its electronic trading capabilities to include creation of an electronic call market and a direct access system that would make it easier for institutions to anonymously trade large blocks of shares.

The key governance change being proposed would convert the exchange into a for-profit, shareholder-owned company. Such a structure, officials say, will make the exchange leaner and permit faster decisions and greater flexibility for raising the capital needed for costly projects, such as technology upgrades.

If approved by its members and by regulators, the TSE intends to begin by issuing shares to its current broker/dealer members. Further down the road, large institutional investors and listed companies may be offered the chance to buy in as well. As of yet, there are no plans for the saleof stock to the public, la the Australian Stock Exchange.

Although the Ontario Securities Commission has already signaled its willingness to support the changes, some members of the industry vow to wage an all-out battle at future commission hearings.

Discontent among members and officials is nothing new at the TSE. Things got so bad last year following an announcement that the overhaul of trading systems to handle the Y2K problem would be more costly than anticipated, that many members took to publicly criticizing exchange management. In response, the board of governors issued a memo to members asking them--in so many words--to please shut up.

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