Trading Functionality Guide
Aequitas NEO Exchange Inc. Trading Functionality Guide AEQUITAS NEO EXCHANGE 1 2015/04/17 AEQUITAS NEO EXCHANGE 2 Table of Contents 1 DOCUMENT VERSION HISTORY ....................................................................................... 5 2 INTRODUCTION ................................................................................................................ 6 3 CONTACT INFORMATION ................................................................................................. 6 4 OVERVIEW ........................................................................................................................ 7 TRADING BOOKS ...............................................................................................................7 4.1.1 Lit Book ....................................................................................................................7 4.1.2 NEO BookTM...............................................................................................................8 4.1.3 Dark Book .................................................................................................................8 4.1.4 Crossing Facility.........................................................................................................8 HOURS OF OPERATION ........................................................................................................8 4.2.1 Lit Book ....................................................................................................................8 4.2.2 NEO BookTM...............................................................................................................8 4.2.3 Crossing Facility.........................................................................................................8 TRADED SECURITIES ..........................................................................................................9 CLASSIFICATION OF TRADER IDS ...........................................................................................9 4.4.1 NEO TraderTM IDs classified as Retail ...........................................................................9 4.4.2 Latency Sensitive Trader IDs ......................................................................................9 5 TRADING IN THE LIT BOOK ........................................................................................... 11 CONTINUOUS TRADING .....................................................................................................11 5.1.1 Price Display............................................................................................................11 5.1.2 Odd-Lots and Mixed-Lots..........................................................................................11 6 TRADING IN THE NEO BOOK.......................................................................................... 12 CONTINUOUS TRADING .....................................................................................................12 6.1.1 Price Display............................................................................................................12 6.1.2 Size-Time priority ....................................................................................................13 6.1.3 Speed Bump ...........................................................................................................14 7 PRINTING TRADES IN THE CROSSING FACILITY ......................................................... 14 8 ORDER TYPES & MODIFIERS ......................................................................................... 15 MARKET ORDER ..............................................................................................................15 LIMIT ORDER..................................................................................................................15 DURATION ORDERS - MODIFIERS.........................................................................................16 8.3.1 Fill or Kill Order (FOK) ..............................................................................................16 8.3.2 Immediate or Cancel (IOC) ......................................................................................16 8.3.3 Good for Day Order .................................................................................................16 8.3.4 Good till Time Order.................................................................................................16 8.3.5 Regular Hours Only (RHO)........................................................................................16 OTHER ORDER MODIFIERS .................................................................................................16 8.4.1 Iceberg Orders ........................................................................................................16 8.4.2 Mixed Lot ................................................................................................................16 8.4.3 Odd Lot...................................................................................................................17 FUNCTIONAL ORDER MODIFIERS ..........................................................................................17 8.5.1 Attributed & Anonymous ..........................................................................................17 8.5.2 Directed-Action Order (DAO) ....................................................................................17 8.5.3 Passive Only Reprice ................................................................................................17 2015/04/17 AEQUITAS NEO EXCHANGE 3 8.5.4 Passive Only Cancel .................................................................................................17 8.5.5 Protect & Reprice .....................................................................................................17 8.5.6 Protect & Cancel ......................................................................................................17 8.5.7 Self-Trade Prevention (STP) .....................................................................................18 8.5.8 Mid-Point Pegged .....................................................................................................18 8.5.9 Bypass Order ..........................................................................................................18 8.5.10 Short Sale ...........................................................................................................18 CROSS TYPES .................................................................................................................19 8.6.1 Bypass Cross ...........................................................................................................19 8.6.2 National Cross .........................................................................................................19 8.6.3 Internal Cross..........................................................................................................19 8.6.4 Basis Cross..............................................................................................................19 8.6.5 Contingent Cross .....................................................................................................19 8.6.6 VWAP Cross ............................................................................................................19 9 SMART ORDER ROUTER.................................................................................................. 20 OVERVIEW.....................................................................................................................20 SPEED SPRAY .................................................................................................................20 CYCLE BY PRICE & SPRAY...................................................................................................20 LATENCY NORMALIZATION..................................................................................................20 DIRECTED ORDERS ..........................................................................................................20 AUTOMATED JITNEY..........................................................................................................20 10 DESIGNATED MARKET MAKER (DMM) PROGRAM......................................................... 21 OVERVIEW.....................................................................................................................21 DMM OBLIGATIONS .........................................................................................................21 DMM BENEFITS ..............................................................................................................22 11 OTHER FEATURES ........................................................................................................... 23 CIRCUIT BREAKERS ..........................................................................................................23 CANCEL ON DISCONNECT ...................................................................................................23 STANDARD TRADING UNITS................................................................................................23 STANDARD TRADING PRICE INCREMENTS................................................................................24 SECURITY TIERS..............................................................................................................24 2015/04/17 AEQUITAS NEO EXCHANGE 4 1 Document Version History Date 2015/04/17 2015/04/17 Comments / Revision Type Launch version AEQUITAS NEO EXCHANGE 5 2 Introduction This document contains a description of Aequitas NEO Exchange functionality as of launch1 and will be updated as new functionality becomes available and reviewed at least annually. All capitalized words are defined in the Aequitas NEO Exchange Trading Policies (the “Trading Policies”); however, in the case of a discrepancy between this document and the Trading Policies, the Trading Policies will apply. 3 Contact Information NEO Trading Services and the Account Management team are the two main points of contact for anything relating to trading solutions. Contact trading services for any support enquiry and the account management team for anything relating to our products and services. CONTACT Trading Services Account Management PHONE (416) 933-5950 (416) 933-5955 EMAIL [email protected] [email protected] Trading Services support is available Monday through Friday as follows: Production Support: GTE Support: 06:00 (EST) to 17:30 (EST) 09:00 (EST) to 17:00 (EST) 1 The launch will be delivered in two phases. The initial launch, as of March 27, 2015, supports the trading of TSX and TSXV listed securities, which will be followed by Aequitas NEO Exchange listed securities mid-2015. This document contains the available functionality for the first phase and will be updated to cover the second phase once that functionality is available. 2015/04/17 AEQUITAS NEO EXCHANGE 6 4 Overview Trading Books 4.1.1 Lit Book The Lit Book puts the long-term investor first by prioritizing NEO TraderTM orders ahead of those designated as coming from “Latency Sensitive Traders”. This provides an opportunity to interact with reliable liquidity while providing a favourable cost structure for long-term investors’ dealers. 2015/04/17 AEQUITAS NEO EXCHANGE 7 4.1.2 NEO BookTM The NEO BookTM provides an opportunity for investors looking to trade size without the intermediation of predatory trading strategies, all at a minimal flat fee. The NEO BookTM rewards those who post orders of significant size by prioritizing them ahead of smaller orders at the same price/time. Active retail orders trade for free in this book, interacting with posted size –reducing fragmentation through higher average trade sizes. 4.1.3 Dark Book The Dark Book is scheduled to launch in Q1 2016, at which point this document will be updated to describe related functionality. 4.1.4 Crossing Facility The Crossing Facility is a service available to all market participants. It supports the execution of various types of crosses in any of the securities traded on Aequitas NEO Exchange free of charge. Only intentional crosses are allowed; cross interference with orders in any of the trading books is not supported. Hours of Operation 4.2.1 Lit Book TIME 9:30am - 4:00pm SESSION Continuous Trading - All order types and order modifiers are accepted 4.2.2 NEO BookTM TIME SESSION 8:00am - 5:00pm Continuous Trading - All order types and order modifiers are accepted 4.2.3 Crossing Facility TIME 8:00am - 5:00pm 2015/04/17 SESSION Continous Trading – All intentional cross types accepted for all traded securities AEQUITAS NEO EXCHANGE 8 Traded Securities The Aequitas NEO Exchange trades all TSX and TSX Venture listed securities 2 with the exception of USD denominated securities (.U)3. See above for trading session information. Classification of Trader IDs A key component for our trading solutions is the differentiation between Trader IDs as being either a NEO TraderTM or a Latency Sensitive Trader. Members have the responsibility to certify their Trader IDs as one of these two categories, defined in the Trading Policies and set out here: “Latency Sensitive Trader” or “LST” means either: a) a proprietary trader of a Member, trading for its own account, using automated, colocated trading strategies; or b) a DEA Client using automated, co-located trading strategies and making its own routing decisions without passing through a Member’s order routing technology, where “using automated, co-located trading strategies” means using a server installed in the same data centre as, or in close proximity to, any Canadian exchange or alternative trading system located in the Greater Toronto Area. “NEO TraderTM” means an account type or an investor that trades through an account type, other than LST (e.g. “Client” account type). 4.4.1 NEO TraderTM IDs classified as Retail Trader IDs that handle flow exclusively from Retail Customers can be classified as such. The only difference between a Retail NEO Trader and a regular NEO Trader is that the former can take liquidity for free in the NEO BookTM. All other aspects remain the same. 4.4.2 Latency Sensitive Trader IDs An LST is a Trader ID that meets one of the two criteria above. An example of the first category would be a Designated Market Maker, but includes any dealer that trades for its own account using co-located automated trading strategies. For the second part of the definition, which includes DEA clients, the key component is who makes the routing decision. An example of who fits in to this category would be those DEA 2 3 Aequitas NEO Exchange listed securities will be traded as of the listings launch planned for mid-2015 Support for .U symbols will be added during 2015 2015/04/17 AEQUITAS NEO EXCHANGE 9 clients that access markets directly (using only dealer provided pre-trade risk filters) and directs orders to venues without relying on their dealers to make the routing decisions. Any type of client flow where the client has no control over which marketplace their orders get routed to is not considered to be LST. LST FAQs We have received some queries about the interpretation of our LST definition. The Q &A set out below has been developed to assist our Members. Q: Is a marketplace router considered a Member’s order routing technology? A: Yes; the entity that operates the router does not matter for the definition. Regardless if it is a marketplace router, a non-marketplace vendor’s router or proprietary technology, it is the Member that is responsible for the order routing. Q: If a DEA client sends directed orders through an order router, does that mean they are not considered LST as they are in fact passing through an order router, which is part of the criteria? A: No, this is not how the definition should be interpreted. The intention of the definition is to allow all clients, including those that normally trade with a speed-based strategy, to be treated similarly to other router users when relying on the Member’s router. The key component is who makes the routing decision. If a DEA client makes the decision to which venue their order should be sent and just uses the router as a mechanism to get there, they are still considered to be LST. In order for them not to be considered LST they have to give up the decision of how to route the order to their dealer. 2015/04/17 AEQUITAS NEO EXCHANGE 10 5 Trading in the Lit Book Continuous Trading A tradable order entered into the Lit Book will execute against resting orders (other than special terms orders – see section 5.5.3) in accordance with the following priority rules: a) A resting order at a particular price will be executed in priority to all orders at inferior prices; b) A visible resting order has priority over a non-visible resting order at the same price at the time of execution; c) If multiple resting orders exist at the same price then the priority sequence is as follows: i. If applicable, a DMM resting order due to the Market Maker Volume Allocation (see section 10.3), ii. Any resting orders from the same Member as the incoming tradable order (broker preferencing): A. All NEO TraderTM resting orders from that Member according to time priority, B. All other resting orders from that Member according to time priority, iii. All NEO TraderTM resting orders according to time priority, then iv. All other resting orders according to time priority; and d) An order loses its time priority if i. its visible volume is increased, ii. the price is amended, iii. the order attribution is amended (to/from anonymous). 5.1.1 Price Display All visible orders resting in the Lit Book except odd lots are displayed on the public data feed with broker attribution (unless marked anonymous). 5.1.2 Odd-Lots and Mixed-Lots The Aequitas NEO Exchange does not have an order book for odd lot orders. Instead, odd lot orders are automatically executed upon entry by the DMM at the current NBB or NBO. If the odd lot order is a limit order, it will be booked at its limit price and only trade at the NBBO only when it reaches its limit price. A mixed lot order will be split into a board lot and an odd lot portion upon entry. The odd lot portion of a resting mixed lot order will only trade when the board lot portion is completely 2015/04/17 AEQUITAS NEO EXCHANGE 11 filled. The odd lot order will receive the same price as the last traded price of the board lot portion. 6 Trading in the NEO Book Continuous Trading Only IOC and FOK orders entered in the NEO BookTM may interact with resting orders in the NEO BookTM to remove liquidity. Any other order entered into the NEO BookTM that would be immediately tradable upon entry will be cancelled back to the user (unless flagged as protect and reprice). Furthermore, some IOC/FOK orders are subject to a speed bump (see section 6.1.3 below). A tradable order entered into the NEO BookTM will execute against resting orders in accordance with the following priority rules: a) A resting order at a particular price will be executed in priority to all orders at inferior prices; b) A visible resting order has priority over a non-visible resting order at the same price at the time of execution; c) If multiple resting orders exist at the same price then the priority sequence is as follows: i. Any DMM resting order at that price may get priority subject to the Market Maker Volume Allocation (see section 10.3), ii. Any resting orders from the same Member as the incoming tradable order (broker preferencing) will be matched according to Size-Time priority (see section 6.1.2), then iii. All other resting orders according to Size-Time priority (see section 6.1.2). If orders are marked as Regular Hours Only, they will be expired back to the originator at 4PM. All remaining resting orders in the NEO BookTM will be cancelled back to the originator at the end of the trading day. 6.1.1 Price Display The NEO BookTM provides a market-by-price display only, meaning that all orders resting in the NEO BookTM that are priced at or outside the NBBO are disseminated on the public data feed by price level. The volume for each price level is: a) For non-pegged orders priced outside the NBBO, the aggregate volume of all visible orders at that price level (iceberg volume is not included); and 2015/04/17 AEQUITAS NEO EXCHANGE 12 b) For orders priced at the NBBO, the aggregate volume of all visible orders at the NBBO, plus the aggregate volume of all tradable mid-point pegged orders. Mid-point orders that are not tradable are removed from the public market data feed until such time as the market conditions change and the mid-point volume becomes executable. Trades executed in the NEO BookTM are disseminatied on the public data feed with broker attribution (unless the order was entered as anonymous). 6.1.2 Size-Time priority The size-time matching priority is an allocation methodology utilized in the NEO BookTM to determine the sequence in which orders will trade when there are multiple potential matches at a given price. First if any single resting order can completely fill the incoming order, that order will trade. If more than one resting order can fill the incoming order completely (or if no resting order can fill it completely) the highest overall size-time ranking score among those resting orders will determine which trades first. The size-time ranking is calculated as a weighted average of three different order rankings: the remaining resting order size, the priority timestamp and the time of the last partial fill. The weighting used for the calculation is subject to change and will be published by notice to Members. 2015/04/17 AEQUITAS NEO EXCHANGE 13 An order loses its time priority (priority timestamp) if its visible volume is increased, the price is amended or the order attribution changes (to/from anonymous). 6.1.3 Speed Bump All incoming IOC/FOC orders originating from a Trader ID that is classified as a Latency Sensitive Trader will be subject to a randomized delay of 3-9 milliseconds. The delay occurs before the order is released into the exchange engine. An order entered into the Exchange system cannot be modified or cancelled while subject to the speed bump; the order will be fully processed with any non-tradable volume cancelled back to the originator. No other order types or order operations from any market participant are subject to the speed bump. 7 Printing trades in the Crossing Facility The crossing facility is available to print crosses at or inside the NBBO, without interference from orders resting in the Lit Book or NEO BookTM. Printing crosses: a) A Member may report crosses made off-exchange, subject to any regulatory provisions applicable to the entry of crosses. b) National and Internal crosses entered during the continuous trading session must be made at a price that is at or within the NBBO. c) Bypass crosses and specialty price crosses such as Basis, Special Terms and VolumeWeighted Average Price will not be reflected in the last traded price and will not be used in the determination of the closing price. 2015/04/17 AEQUITAS NEO EXCHANGE 14 8 Order Types & Modifiers The Aequitas NEO Exchange features a number of order types and modifiers that are available in the Lit Book, NEO BookTM and the Crossing Facility. ORDER TYPE, MODIFIER AND ATTRIBUTE Limit Order Market Order Fill or Kill (FOK) Immediate or Cancel (IOC) Good for Day Good till Time Regular Hours Only Iceberg Mixed Lot Odd Lot Attributed & Anonymous Directed-Action Order Passive Only Reprice Passive Only Cancel Protect & Reprice Protect & Cancel Self-Trade Prevention Mid-Point Pegged Bypass Order Short Sale Bypass Cross National Cross Internal Cross Basis Cross Contingent Cross VWAP Cross AVAILABLE IN LIT BOOK Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No Yes Yes No No No No No No AVAILABLE IN NEO BOOK Yes Yes Yes Yes Yes Yes Yes Yes No No Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes No No No No No No AVAILABLE IN CROSSING FACILITY No No No No No No No No No No Yes Yes No No No No No No No Yes Yes Yes Yes Yes Yes Yes Market Order As defined in UMIR, a market order is an order to be executed upon entry to a marketplace to buy or sell a security at the best ask or bid price. Market orders are available in both the Lit Book and the NEO BookTM. Limit Order As defined in UMIR, a limit order is an order to buy or sell a security at a specified maximum or minimum price. Any unfilled part of an executed limit order is converted to a new limit order at a price equal to the price of the last fill of the order, or the last traded price. Limit orders are available on both the Lit Book and the NEO BookTM. 2015/04/17 AEQUITAS NEO EXCHANGE 15 Duration Orders - Modifiers Duration order types will determine the amount of time an order remains active and executable in the Lit Book and NEO BookTM. 8.3.1 Fill or Kill Order (FOK) A limit order or market order that is to be filled immediately in full, or cancelled. Available on both the Lit Book and the NEO BookTM. 8.3.2 Immediate or Cancel (IOC) A limit order or market order that is to be filled immediately in full or in part, with the unfilled quantity cancelled. Available on both the Lit Book and the NEO BookTM. 8.3.3 Good for Day Order A limit order that is valid until it is fully filled or cancelled, and expires at the end of the continuous trading session (or at the end of the extended trading session for eligible securities). Available on both the Lit Book and the NEO BookTM. 8.3.4 Good till Time Order A limit order that is valid until it is fully filled or cancelled, and expires at a specified time. Available on both the Lit Book and the NEO BookTM. 8.3.5 Regular Hours Only (RHO) An order that is valid for “regular hours only” can only be entered between 9:30am and 4:00pm in the Lit Book and between 8:00am and 4:00pm in the NEO BookTM. Any resting orders marked RHO are considered expired at 4:00pm by the system. Available on both the Lit Book and the NEO BookTM. Other Order Modifiers 8.4.1 Iceberg Orders An iceberg order is a limit order that specifies a total size and a disclosed size. Once the disclosed size is executed in full, another order will be displayed with priority corresponding to the release time, and the undisclosed size, or “reserve”, will be reduced accordingly. Available on both the Lit Book and the NEO BookTM. 8.4.2 Mixed Lot A limit or market order containing at least one board lot and one odd lot. Available on the Lit Book only. 2015/04/17 AEQUITAS NEO EXCHANGE 16 8.4.3 Odd Lot A limit or market order containing less than one board lot. Available on the Lit Book only. Functional Order Modifiers 8.5.1 Attributed & Anonymous A limit order entered into the exchange system is by default attributed, unless marked anonymous by the user. Anonymous orders do not benefit from broker preferencing. Orders with special settlement terms must be attributed. Available on both the Lit Book and the NEO BookTM. 8.5.2 Directed-Action Order (DAO) A limit or market order as defined in National Instrument 23-101 Trading Rules. Available on both the Lit Book and the NEO BookTM. 8.5.3 Passive Only Reprice A limit order that is repriced to one trading increment from the opposite side of the NBBO (NBO-1 for buy orders and NBB+1 for sell orders) at the time of a price amendment if any portion of the order is tradable upon entry. Available on both the Lit Book and the NEO BookTM. 8.5.4 Passive Only Cancel A limit order that is cancelled at time of entry if any portion of the order is immediately tradable. Available on both the Lit Book and the NEO BookTM. This is the default order handling instruction if a tradable passive order is entered onto the NEO BookTM. 8.5.5 Protect & Reprice A limit or market order that will execute to the extent possible at the NBBO before adjusting the price of any residual volume that would trade at a worse price than available on another marketplace, or unintentionally lock/cross the market. Orders will be repriced to one trading increment from the opposite side of the NBBO (NBO-1 for buy orders and NBB+1 for sell orders). Available on both the Lit Book and the NEO BookTM. Note: on the NEO BookTM, resting orders are not eligible to trade with one another; as a result, these tradable passive orders will only be repriced. 8.5.6 Protect & Cancel A limit or market order that will execute to the extent possible at the NBBO before cancelling any residual volume that would trade at a worse price than available on another marketplace, or unintentionally lock/cross the market. Available on both the Lit Book and the NEO BookTM. Note: on the NEO BookTM, resting orders are not eligible to trade with one another; as a result, these tradable passive orders will only be canceled. 2015/04/17 AEQUITAS NEO EXCHANGE 17 8.5.7 Self-Trade Prevention (STP) A limit or market order that identifies eligibility to trade with other orders originating from the same Member with the same self-trade key, as set by the user. The user can use STP to achieve the following treatment of such trades: Trade no Print – when an incoming order executes against opposite side resting interest marked STP originating from the same Member with the same selftrade key, the trade occurs, however it is not disseminated on the public trade feed and does not update the last traded price, daily volume, value, or other trading statistics. The trade is still sent to the Clearing Corporation for settlement to facilitate reconciliation. Self-trade prevention applies to unintentional crosses in the continuous trading session only. The designation is applicable to board lot orders and the board lot portion of mixed lot orders. Available on both the Lit Book and the NEO BookTM. 8.5.8 Mid-Point Pegged A limit or market order that can only execute at the mid-point of the NBBO. The execution price is automatically adjusted in response to changes in the NBBO. A mid-point pegged order is an order in the NEO BookTM where the volume of the order is displayed at the NBB or NBO. In the NEO BookTM, only tradable mid-point volume will be displayed. If a mid-point pegged order is not tradable as a result of its limit price being above (below) the limit price for a buy (sell) order, the volume will not be displayed until such time as the market conditions change or the limit price is amended. Available on the NEO BookTM. 8.5.9 Bypass Order A limit or market IOC or FOK order that, when marked bypass, will only execute with visible quantity, skipping any hidden volume, including the non-visible portion of iceberg orders, at a given price level. Note: tradable mid-point pegged order volume in the NEO BookTM will execute against incoming bypass orders as the volume is displayed at the NBB or NBO. Available on both the Lit Book and the NEO BookTM. 8.5.10 Short Sale A limit or market sell order where the Member has indicated that the order quantity is fully or partially to be sold short. 2015/04/17 AEQUITAS NEO EXCHANGE 18 Cross Types 8.6.1 Bypass Cross An intentional cross entered at an agreed-upon price during the continuous trading session indicating that, at time of submission, all visible better-priced order quantity has been executed (via submission of a bypass order), allowing for printing without interference from any orders in the Lit Book and NEO BookTM. 8.6.2 National Cross An intentional cross entered at an agreed price during the continuous trading session, which at the time of entry is at or within the NBBO. 8.6.3 Internal Cross An intentional cross between two accounts managed by the same portfolio manager , which at the time of entry was at or within the NBBO. 8.6.4 Basis Cross An intentional cross whereby a basket of securities is transacted based on the execution of related exchange traded derivatives. 8.6.5 Contingent Cross An intentional cross resulting from a paired order placed by the Member on behalf of a client that was contingent on the execution of a different order for the same client with an offsetting volume in a related security. 8.6.6 VWAP Cross An intentional cross executed at a volume-weighted average price of a security. 2015/04/17 AEQUITAS NEO EXCHANGE 19 9 Smart Order Router Overview The Aequitas Smart Order Router (SOR) delivers the benefit of a multitude of routing strategies and a unique latency normalization technique. The approach is designed to protect tradable orders from predatory tactics which leverage speed and assymetric access to information used by some of the high-frequency trading (HFT) firms active today in Canada. Depending on which SOR package has been subscribed to, a selection of predefined routing tables preferencing certain marketplaces for active and passive orders is available, as well as the option for full customization. The Aequitas SOR can be integrated with any OMS and will function as an extension or backup for an existing SOR solution. Speed Spray The Speed Spray Strategy will spray all markets and price levels at the same time (up to the limit price of the order). Cycle by Price & Spray The Cycle by Price & Spray Strategy will iterate through each price level, one at a time (up to the limit price of the order), and spray. Latency Normalization The Aequitas SOR normalizes the speed at which orders are delivered to each transparent trading venue in Canada, ensuring they all arrive at the same time. By synchronizing the impact of tradable orders across multiple marketplaces, a fairer trading environment is created. Directed Orders Directed orders allow the customer to send an order directly through to a specified marketplace without using one of the SOR’s routing strategies. Automated Jitney The Aequitas SOR offers the possibility for dealers to benefit from all the features of the SOR without incurring the cost of becoming a member/subscriber of all marketplaces. By routing trades to a jitney provider for those marketplaces where the dealer is not a member or subscriber, they can still provide clients with best execution capabilities and fulfil their regulatory requirements. 2015/04/17 AEQUITAS NEO EXCHANGE 20 10 Designated Market Maker (DMM) Program Overview Liquidity is a vital contributor to investor confidence and issuer success. The Aequitas NEO Exchange DMM program establishes a balance between obligations and benefits to achieve meaningful results. A DMM leverages its experience, technology and innovation to provide liquidity to securities trading on the Aequitas NEO Exchange (TSX Listed, TSX-Venture Listed & NEO Listed). All DMMs must be IIROC members trading for their own accounts to assist in maintaining a fair and orderly market and to achieve reasonable price continuity for assigned securities in both the Lit and NEO BookTM. In the interest of transparency, participants will be monitored with performance metrics made available to ensure maximum effectiveness of the program. DMM Obligations DMM obligations include two-sided continuous quoting with size and spread requirements over a proportionate assignment of liquid and illiquid securities. This ensures viable economics for market makers and a viable liquidity safety net for those securities that need it the most. 2015/04/17 AEQUITAS NEO EXCHANGE 21 For Aequitas NEO Exchange listed securities, the DMM will also be responsible for facilitating the opening call, delayed opening and resumption of trading following a halt for assigned securities. DMMs must also facilitate the automatic execution of all odd lot orders for their assigned securities. To ensure there is auto-execution of odd lots across most, if not all securities traded on Aequitas NEO Exchange, for any unassigned securities we have introduced a fourth tier for which there are no quoting obligations and no benefits, only odd lot obligations. At the discretion of the DMM to whom it has been assigned (or any other DMM willing to take on the quoting obligations), a Tier 4 security can at some later point be reclassifiedas a Tier 3 security and regular quoting obligations would then apply. TSX & TSXV listed securities Obligations Tier 1 Tier 2 Tier 3 95% 95% (per Book and per Security) Quoting Two-sided quote, X% between 9.30am-4.00pm of time 95% Size & Spread Number of board lots (BL) within X% 5BL, 3% of last sale price, minimum 1 BL on each side 3BL, 5% 2BL, 7% Presence X% of the time @ NBB and NBO 20% 30% Quote Range X% with defined limit of Y% from 3%, 5% NBB/O 5%, 7.5% 7%, 9% 10% See section 11.5 for tier definitions. DMM Benefits To balance their obligations, DMMs are provided with a unique Market Maker Volume Allocation (MMVA) for their assigned securities. The MMVA allows the DMM to participate in the Lit Book and NEO BookTM (independently), up to 15% of the daily traded volume in that book. DMM orders will be given matching priority until they reach the 15% maximum allocation, at which time their orders will resume the normal priority sequencing. The priority only applies to the visible portion of their order. Any non-visible volume will trade according to regular matching priorities. The MMVA allocation is executed without order fragmentation which means that the full size of their visible order will move to the top of the queue and trade with the next incoming order if they have not exceeded their 15% allocation. 2015/04/17 AEQUITAS NEO EXCHANGE 22 11 Other Features Circuit Breakers The Aequitas NEO Exchange has implemented two types of circuit breakers to minimize the risk of erroneous trades: Static Price Bands and Dynamic Price Bands. Both of these apply in the Lit Book and NEO BookTM during the opening call and continuous trading session. In the event a circuit breaker is triggered, the security will automatically go into a no matching halt state. The static price band is based on a deviation from a reference price, which will be set each day to the opening price for the security, or if no opening has occurred, the previous day’s closing price. The dynamic price band is based on a deviation from the last sale price. Price <$0.10 <$0.25 <$0.50 <$1.00 <$5.00 <$10.00 <$20.00 <$40.00 <$80.00 >=$80.00 Static Price Band 400% 200% 100% 75% 50% 30% 20% 15% 15% 7% Dynamic Price Band 300% 150% 75% 50% 40% 25% 15% 10% 7.5% 5% Cancel on Disconnect A Member can instruct Aequitas NEO Exchange to cancel all orders in the event that the FIX session those orders were entered through gets disconnected. The functionality can be configured on each FIX session independently. Standard Trading Units The Standard Trading Unit for a given symbol is defined in UMIR as per the table below. Price > $1.00 Between $0.10 and < $1.00 < $0.10 2015/04/17 Board Lot 100 shares 500 shares 1000 shares AEQUITAS NEO EXCHANGE 23 Standard Trading Price Increments Price Range < $0.50 > $0.50 Tick Size 0.005 0.010 Security Tiers All securities traded on the Aequitas NEO Exchange belong to a specific tier. The tier is used to determine the DMM obligations for a security (see section 10.2). The tier is determined by the Median Daily traded Value (MDV) for each security. MDV is calculated based on monthly trading activity across all Canadian marketplaces and the security tiers are revised once per quarter. TIER 1 2 3 MDV > $10,000,000 $1,000,000 - $10,000,000 < $1,000,000 Any security that trades less than 100 times per day is automatically put in Tier 3 regardless of MDV. 2015/04/17 AEQUITAS NEO EXCHANGE 24
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