Investigation into alleged anti-competitive conduct by TMX Group Limited

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• Background — securities market data
• Alleged anti‑competitive conduct
• Overview of investigation
• Analysis
• Conclusion

Background — securities market data

Market participants in Canada rely on securities market data – the trading-related information for publicly listed securities, such as stocks or exchange traded funds – to make informed investment decisions.

While there are other types of securities market data in Canada, indicative market data is perhaps the most pervasive. Indicative market data is data displayed on a screen, which allows investment advisors and retail investors to assess, among other things, the best available bid and offer prices at which a particular security can be purchased or sold, the prices at which recent trades took place and the volume of recent trading activity.

At present, sources of indicative market data in Canada include:

1. market data provided by individual marketplaces, such as the Toronto Stock Exchange (the “TSX”) and the TSX Venture Exchange;
2. data vendors, who aggregate market data across marketplaces (e.g., Bloomberg and Thomson Reuters); and
3. the Information Processor, which is a service mandated by provincial regulators and contracted out to TMX Group.

Much like data vendors, the Information Processor aggregates market data across marketplaces.

Alleged anti‑competitive conduct

In 2015, Aequitas Innovations Inc. (“Aequitas”) advised the Bureau of alleged anti-competitive conduct by TMX Group, which was impeding Aequitas’ ability to develop a consolidated market data product called the CMV Connect^TM (the “CMV”). According to Aequitas, once developed, the CMV would provide market participants with an alternative source of indicative market data at a lower price than existing products.

Unlike existing sources of indicative market data, each of which depends on data received directly from Canadian marketplaces, development of the CMV would require access to the private market data of investment dealers. Private market data, as it is commonly known in the industry, includes certain information that flows between a marketplace and an investment dealer in connection with a trade initiated by that dealer, such as information on the identity of the buyer or seller, the trade time and the price and volume of the trade.

According to Aequitas, the CMV would be developed as follows:

• Collection: First, Aequitas would collect private market data from participating investment dealers (i.e., investment dealers willing to share their private data with Aequitas).
• Aggregation: Aequitas would then aggregate all of the private market data, and in turn combine this aggregated data with public indicative market data generated by Aequitas’ NEO Exchange.
• Distribution: Once aggregated, the indicative market data would be distributed back to investment dealers at a lower price than existing products.

Aequitas alleged that it could not develop the CMV because of certain contractual clauses imposed by TMX Group on investment dealers. These contractual clauses, which are included in TMX Group’s standard form market data agreement with investment dealers, preclude investment dealers from sharing private market data with third parties, such as Aequitas, absent express written consent from TMX Group.

Evidence collected by the Bureau during the course of its investigation confirms that TMX Group has refused requests by investment dealers to share private market data with third parties, such as Aequitas. This has, according to Aequitas, prevented it from developing the CMV and bringing it to market.

Overview of investigation

In reaching its conclusions in this matter, the Bureau obtained information from many different sources in order to assess the likely competitive effects of the alleged anti‑competitive conduct. Specifically, the Bureau gathered information from, and consulted with, a number of parties including Aequitas, TMX Group, domestic and international securities commissions and various Canadian marketplaces. The Bureau also engaged in discussions with a number of large and small Canadian investment dealers that actively trade securities listed on a Canadian marketplace.

Analysis

The Bureau’s review considered whether the contractual clauses imposed by TMX Group contravened the restrictive trade practices provisions of the Act, with a focus on the abuse of dominance provisions.

Abuse of dominance occurs when a dominant firm or group of firms in a market engages in a practice of anti-competitive acts, with the result that competition has been or is likely to be prevented or lessened substantially.  The Bureau’s investigation focused on the last part of the abuse of dominance test – namely, whether the contractual clauses imposed by TMX Group were likely to substantially prevent competition in a market. Specifically, the Bureau examined whether sufficient future competition from the CMV would be likely to materialize in the absence of TMX Group’s alleged anti-competitive conduct.

Evidence obtained by the Bureau indicated that in order for the CMV to effectively compete with the current sources of indicative market data in Canada, Aequitas required a substantial volume of private market data from investment dealers. Accordingly, the Bureau considered whether there was compelling evidence that Aequitas would likely be able to obtain such a volume of private market data from investment dealers absent TMX Group’s contractual clauses. The Bureau found that:

• the level of interest among investment dealers in Aequitas’ proposed CMV product varied considerably;
• investment dealers had a number of concerns with respect to the CMV, including with respect to the confidentiality of private market data, and it was unlikely that Aequitas would be able to address these concerns within a reasonable period of time; and
• Aequitas had not obtained credible commitments from investment dealers to provide their private market data absent TMX Group’s contractual clauses. Moreover, it was unlikely that Aequitas would be able to obtain such commitments within a reasonable period of time given the preliminary status of negotiations between Aequitas and investment dealers.

Taken together, this evidence suggested that, even absent TMX Group’s contractual clauses, it was unlikely that Aequitas would be able to obtain a sufficient volume of private market data from investment dealers to develop a sufficiently competitive product.

As such, the evidence collected by the Bureau indicates that even in the absence of TMX Group’s contractual clauses, it is unlikely that sufficient future competition from Aequitas’ CMV would materialize. Consequently, the Bureau concluded that the alleged anti-competitive contractual clauses were not likely to have the effect of preventing competition substantially in a market by preventing entry by Aequitas. Given this finding, it was not necessary for the Bureau to reach a final conclusion on the other elements of an abuse of dominance.

Conclusion

As described above, the information collected by the Bureau during the course of its investigation does not indicate that TMX Group’s contractual restrictions have, at this time, substantially lessened or prevented competition in any relevant market in Canada by preventing entry by Aequitas.

The Commissioner’s enforcement decisions are based on the available evidence. Should new and compelling evidence come to light of harm in the Canadian marketplace, the Bureau will not hesitate to take appropriate action.

The Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace.