Download PDF:
CSA IIROC Consultation Paper 23-406 Internalization within the Canadian Equity Market
Letter Summary:
The CSA and IIROC seek feedback in response to concerns regarding the internalization of retail/small orders within the Canadian equity market. While there are a variety of competing interests, the underlying goal is to ensure the protection of investors, and to foster fair and efficient capital markets and confidence in capital markets. In addition to the specific questions put forth throughout the Consultation Paper, general comments in relation to internalization were welcomed.
Overview of the Council’s Comments:
The council is encouraged by the collaborative consultation undertaken by IIROC and the CSA. The timing of this initiative is critical. While marketplace data shows a relatively low volume of trades, this can trend higher over time and impact the overall efficiency of the marketplace. In our view, an outright ban on retail internalization via the broker preferencing mechanism can create an economic incentive for each broker to set up their own trading venue to better access, and to trade against, their own order flow. Currently, this scenario is unfolding in Europe. While we are supportive of the status quo, we believe reasonable regulatory limitations highlighted in our letter may help dis-incentivize future proliferation of the current internalization practices.