A request for comment from TSX Inc. on the implementation of a pre-trade matching facility, known as the Alternative Trade execution is included in the latest issue of the OSC Bulletin.

The board of directors of the TSX has approved amendments to the rules of the Toronto Stock Exchange to provide for an additional rule set and definitions to govern the operations of a pre-trade matching facility.

It notes that the ATX will be a subscription-based trading facility of the TSX designed to match subscriber order flow against in-house interests as well as the interests of other subscribers in a blind electronic book. Each of these interests is represented by an ‘intent’ that constitutes a willingness of an ATX subscriber to buy or sell a security if certain conditions are met in the market. Orders and intents that are matched on ATX will be sent to the trading engine of the exchange for trade execution at an improved price from the posted best bid/offer.

“ATX is intended to consolidate multiple streams of liquidity from multiple trading desks within a participating organization, other POs’ trading desks and from the pooling of upstairs client interest,” it explains. “This consolidation and other ATX features are designed to deliver subscribers additional accessible liquidity, price improvement over the posted best bid/offer and lower execution costs.”

“The primary utility of the ATX facility is to enable subscribers to process large blocks of demand and supply of a security in a cost efficient manner. Large blocks of demand and supply within ATX will have access to additional depth of liquidity at the top of book price,” it adds. “These large hidden blocks, once designated as Intents, may then be filled gradually by applying smaller orders of the subscriber’s own ATX designated order flow, as well as the ATX designated order flow of all other subscribers. Such large blocks of Intents will be able to fill against smaller orders without causing any movement of the posted best bid/offer because the price matches in ATX are within the posted best bid/offer and Intents are not visible to the market. Also, Intents that represent large blocks of demand can interact with other Intents that are large blocks of supply to generate single ticket fills, thereby lowering execution costs.”

“ATX is designed to deliver an additional source of liquidity to ATX participants by enabling the interaction of small retail order flow with large blocks of supply and demand, which have typically been inaccessible and restricted to trading in the upstairs market,” the notice says.