Last week, Aequitas Innovations announced that it had filed a formal complaint with the Competition Bureau of Canada, requesting a federal investigation into certain anti-competitive practices of the TMX Group. Aequitas believes that the TMX Group is using its dominant market position to maintain control over the pricing of market data in the Canadian capital markets.
That’s the news story.
But if advisors take a closer look at this issue they’ll come to the realization that the marketplace that currently exists when it comes to market data is hurting their ability to do a good job for their clients and ultimately could be financially detrimental to their business.
WP spoke to Aequitas CEO Jos Schmitt to understand why.
“I had a discussion with an ETF issuer who told me about a discussion with an advisor who wanted to invest $5 million for his clients in an ETF but he looks at his screen and barely saw any volume in the ETF and said, ‘I’m not going to invest the money of my clients in an ETF that’s not liquid because if I want to step out I have an issue,’ Schmitt told WP. “He makes a different decision but it turns out that the ETF was actively trading in other markets and it led him to make a decision that was not right for the clients and it prevented the ETF issuer from collecting $5 million in capital it was seeking to raise.”
The problem for retail investors and investment advisors in Canada is that they only have access to about 60% of the trading activity that takes place in the public markets for Canadian public companies and even less for ETFs putting advisors at a disadvantage and having to rely on incomplete data when making decisions for clients.
Not only does this situation affect advisors but it also affects Canadian public companies because they’re not getting nearly as much attention from advisors as they might be if only we had better and more complete market data.
“If you look at international investors in North America there’s probably 250,000 advisors who look at the data through their Thomson Reuters or Bloomberg screens,” said Schmitt. “Out of those there’s about 20,000 that look at Canadian data and when you ask the big dealers with whom they’re affiliated, ‘Is that because they’re not interested?’ The first answer they give you is that it’s too expensive. I can’t say that all those guys if they had access to the data they would invest in Canadian securities but if they don’t have access they definitely won’t.”
The fees that the TMX charges are said to be approximately 100 times more expensive than those in the U.S. Differences in the population of the two countries only justifies a difference in fees to a point – 10 times, perhaps, but certainly not 100.
Many inefficiencies still exist in the Canadian investment industry so it’s important that advisors don’t turn a blind eye to this problem because ultimately it could be costing you and your clients money.
“How many times is this scenario repeating itself in the Canadian market and all of that because we’re unable to come with an adequate consolidated view of Canadian market data that’s available at a reasonable cost,” said Schmitt.