TSX Speeds Up to Lure U.S. Trading

TORONTO—The Toronto Stock Exchange (TSX) is introducing a series of changes for its transaction technology in a bid to make itself a more attractive venue for liquidity from North American securities firms.

The internally developed technology upgrade, dubbed TSXPress, should be completed during the third quarter of this year, and is intended to cut response times of the trading engine by 50 percent, says TSX Markets president Rik Parkhill. "The enhancements we're going to make will set a new standard for North American exchanges," Parkhill says. Securities firms can access the exchange via third-party services.

Firstly, the exchange will reserve dedicated processing power in the trading system for TSX's most actively traded stocks. "Now, when an order comes in, it looks for spare CPU capacity … and while it is looking, it is queuing up," Parkhill says. Dedicating CPU space will ensure that the most-active stocks can always be traded quickly enough for TSX to compete for business with other exchanges, he says.

Parkhill says that between 10 and 20 of TSX's 1,500 listed stocks are most in demand for algorithmic trading and cross-border arbitrage opportunities. They account for the bulk of exchange messages. He says that the TSX will have a list of stocks for which capacity will be reserved, based on the ongoing quote-to-trade ratio.

The exchange will also simplify the connections among its multiple order books—used for different order types. Currently, "orders make a 'round trip' and when they find the right book, the process begins," Parkhill says. Linking these intelligently will immediately route orders to the correct order book.

In addition, TSX will change how it stores data. "Everything is written to disk right now, but we are moving to put data into resident memory," Parkhill says. "Tick data can freeze if the system is too busy, and it's easier to retrieve that if the data is stored in resident memory than from a database."

The exchange is also expanding a solution that it currently provides for individual user firms to internalize order flow, dubbed FOX (Firm Order Execution). In addition, TSX will now offer an industry-wide version, ATX (Alternative Trade Execution), which will allow firms to anonymously post "intent to trade" notifications to other firms off-exchange. Parkhill says users may be able to match at better prices, while the exchange benefits by gaining a foothold in a business that would otherwise have excluded it.

Parkhill adds that the Unix-based transaction platform will be easily expanded because it was designed with the need for excess capacity in mind. "There is some hardware that needs to be purchased, but not a large amount. It won't be an expensive undertaking," he says.