It's important that Canadians know what is really going on.
Transparency in Trades
The biggest and most important aspect of any stock-trading platform is transparency.
Investors should be able to see exactly how many bids and sell orders are available for a stock at any given time - especially for an exchange that has minimal liquidity and therefore much easier to manipulate. This is how investors calculate at what price he/she should place a buy or sell order.
The depth of the market can be seen using a paid service called Level II that gives you access to the order book in real time. I have always said that anyone who trades should pay for such a service. However, even with this service, you're far from being protected.
Especially since regulators decided to enforce what they believe to be fair competition on the TSX and TSX Venture...
Multiple Trading Platforms
Many retail investors I speak with have no clue that there are multiple parallel trading platforms for the stocks they buy in Canada.
Canadian regulators forced the TMX Group, the parent of the TSX and TSX Venture exchanges, to allow trading through alternative trading systems operated by third parties because they felt there should be fair competition in the market of buying and selling stock in Canada.
As a result, there are now many alternative market centers that process trades for stocks listed on the TSX and TSX Venture. Some of these include Alpha Trading Systems, Chi-X Canada, Pure Trading, Omega ATS, and dark pool Match Now.
According to Stockwatch:
"Alternative trading systems in Canada handled 33.7 per cent of trading volume during the week ended May 3, 2013.
...The Toronto Stock Exchange and the TSX Venture Exchange handled the other 66.3 per cent.
...Looking at securities listed only on the TSX, the exchange captured 61.2 per cent of volume. Chi-X handled 18.3 per cent, Alpha had 11.7 per cent and together the other ATSs handled the rest, 8.8 per cent."
As you can see, these alternative trading systems handle a large portion of the trading volume in Canada, yet most regular Canadian investors don't see this because most quote systems do not include transactions from all of these different platforms.
Furthermore, while volume of trade can be seen by the select few quote platforms that incorporate the volume between these exchanges, none of them combine them in the same bid/ask level II depth because they are being traded on different platforms via parallel order books.
In other words, while you may be trading a stock on one platform, that same stock is being traded on different platforms at the exact same time. This not only removes transparency - especially for the average retail investors - but it also removes visible liquidity for any particular stock.
The retail investor using their online trading quote system doesn't stand a chance - especially when playing on a exchange with little volume, such as the TSX Venture.
But if parallel order books is such an issue, why is it allowed?