Notice of Approval - Proposed Changes to the MATCHNow Trading System - TriAct Canada Marketplace

The Proposed Fee Tracking Option should be denied because it would result in inappropriate information leakage. Under MATCHNow's fee structure for non-ETF trades, unintentional crosses (which occur when an order from a particular firm is executed against a counterparty at the same firm, excluding jitney transactions) are free, while other such trades have a fee. Thus, if MATCHNow were to disseminate trade fee messages in real time, a participant receiving a fill from MATCHNow on a non-ETF trade would be able to infer additional information regarding its trade counterparty by combining fee information with the publicly disseminated broker code. Specifically.

MATCHNow appreciates the CSTA's consideration of this issue and its comments. MATCHNow Subscribers had requested this proposed feature, which has been available in the U.S. markets for some time, and our goal was to be responsive to our Subscribers' needs. Unlike in the U.S., however, marketplaces in Canada use broker numbers and broker preferencing; as a result, there is the potential that real-time fee information could be used to infer the identity of the specific broker through which an ultimate counterparty has executed an anonymous trade in certain circumstances. We note that the identity of that counterparty would still be unknown to the Subscriber, and any inferences regarding the counterparty could never be drawn with 100% certainty. We further note that the proposed feature would have been made available to all MATCHNow Subscribers equally, in accordance with principles of "Fair Access." Nevertheless, in an abundance of caution, and to allow us to further consider the issue, we have decided to withdraw the Proposed Fee Tracking Option at this time.

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If the trade is assigned a fee, but the counterparty broker code is publicly disclosed as the same as the subscriber's, then the counterparty would be inferred to be a jitney client of the counterparty's firm;

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If the trade is "free," but the counterparty is anonymous, then the counterparty would be inferred to originate at the same firm as the subscriber.

In both cases, the subscriber would have an informational advantage compared with other market participants. This indirect disclosure of firm identity through the disclosure of trading fees is an inappropriate and unacceptable trade-off.

The Proposed Fee Tracking Option should be denied, whether the information is available on drop copy FIX sessions or via the order entry FIX session. End broker clients are already known to directly receive their own drop copy FIX sessions, and thus only disallowing the order entry FIX session would not be sufficient.

We have withdrawn the Proposed Fee Tracking Option, so the concern underlying this comment is now moot. We will keep this comment in mind for any future proposal regarding trade fee tracking.

Dissemination of trade fees in real time could be useful to facilitate standardized trade fee reporting. In an environment where heightened transparency and information disclosures are required to evaluate trade execution quality, trading fees are becoming a key output in broker-to-client reporting. Marketplaces should build features that decrease the burden of post-trade information reporting to clients and internal reporting, but not at the cost of creating information leakage. Only marketplaces with fee structures that would not lend themselves to creating information leakage should be allowed to disseminate trade fees in real time.

We agree that dissemination of real-time trading fees is a desirable goal, and that it should not result in any informational advantage for any particular market participant. To that end, we reserve the right to propose future changes that enable our Subscribers to track their fees in a more effective and timely manner.

If MATCHNow were to modify its fee structure to eliminate the potential information leakage, or make other changes unrelated to the current proposal, we believe that sending the actual cost would be more practical for subscribers. The current proposal requires the maintenance of a map of fee codes to fee rates and, therefore, would require subscribers to adjust internal systems whenever MATCHNow's fee schedule changes. This burden would be eliminated by disseminating trade costs in dollars (or as a rate per share). It is requested that that any future proposal to implement real-time trading fee dissemination be associated with a message containing the actual cost instead of a reference code to a fee structure, as this will prevent unnecessary street-wide development costs every time there is an update of a trade fee schedule.

We appreciate this comment and will keep it in mind for any future proposal concerning trade fee tracking.