IIROC, in collaboration with the Bank of Canada, studied the impact of the redesign of TSX Alpha Exchange (Alpha) which on September 21, 2015, adopted a suite of changes including a speed bump1. Concerns were raised that these changes might have an negative impact on market quality in Canada.
In the attached paper we investigate segmentation, market quality measures, and differences in routing behaviour around the Alpha redesign. The main findings of the study are summarized below:
- no meaningful increase in segmentation
- no material change in market-wide measures of trading costs relative to either their past levels or to a matched control sample of US stocks
- an increase of approximately 5 percent in execution size market-wide
- an increase of approximately 75 percent in execution size on Alpha alone
- a decrease in order-to-trade ratios and an increase in size of market orders by heavy buy-side users of Alphaa decrease in the use of sprayed orders by heavy buy-side users
Our results show that the redesign of Alpha, including the addition of a speed bump, did not adversely affect the quality of Canadian equity markets.
1 A speedbump is a systematic delay between the receipt of an order and its execution.
