Canada’s largest “dark pool” stock-trading platform, MatchNow, is up for sale and expected to attract interest from TMX Group Ltd. and rival exchanges that want to dominate the rapidly growing world of electronic trading.
Toronto-based MatchNow, officially known as TriAct Canada Marketplace LP, was founded in 2007 and allows clients – typically investment dealers and institutional investors – to sell stock on its computer networks anonymously, unlike regular exchanges. In recent months, the platform accounted for 6 per cent of the $5-billion in trading that takes place each day in domestic equity markets, facilitating buying and selling of about 1.2 billion shares each month in 2.2 million trades.
New York-based Virtu Financial Inc. acquired MatchNow last March as part of a US$1-billion takeover of rival electronic trading platform Investment Technology Group Inc. (ITG), which was also based in New York. Virtu quietly put MatchNow up for sale late last year after a strategic review of the business, and hired RBC Dominion Securities Inc. as its adviser, according to sources familiar with the transaction. The Globe and Mail is not identifying the sources because they are not authorized to discuss the matter. The sources say they expect MatchNow to fetch $125-million to $140-million.
A Virtu spokesman and MatchNow executives declined to comment.
Logical buyers include the TMX Group, which owns the Toronto Stock Exchange and already operates dark pools, and Toronto-based Aequitas Innovations Inc., which owns the rival Neo Exchange. Virtu Financial has a small, passive ownership stake in Aequitas acquired as part of the ITG transaction. Spokespersons for TMX Group and the Neo Exchange declined to comment on MatchNow. Foreign stock exchanges and private equity funds could also be interested, the sources said.
None of Canada’s six banks is expected to want to buy MatchNow, as they are its customers, and would stop doing business with the platform if a rival owned it, the sources said.
While MatchNow has grown under ITG and Virtu, the asset could be more valuable in the hands of larger exchange operators who can route clients through the system and drive efficiencies due to scale and regulatory expertise. The sale of MatchNow appears to be a move to cash in on a valuable asset, but not exit the Canadian market entirely.
“We recently launched our interlisted Posit Alert service that offers seamless block liquidity between U.S. and Canadian markets,” Virtu ITG Canada Corp. chief executive Ian Williams said. He added that the company is also expanding its exchange-traded-fund business in Canada.
Late last year, Virtu restructured its Canadian operations, parting ways with some former ITG executives, including its heads of sales, trading, research and technology. The company is listed on the New York Stock Exchange, and lost US$41-million on revenues of US$1.1-billion in the nine months ended Sept. 30, 2019, according to its most recent financial results. In a recent presentation, Virtu said it expects to deliver up to US$157-million of cost-cutting synergies in 2020 after the takeover of ITG.
Dark-pool trading in Canada has grown in recent years. By the end of 2019, 13 per cent of trading volume for TSX-listed securities was happening in dark pools. MatchNow captures the largest slice of such business in Canada, although dark pools run by the TMX Group and Nasdaq Inc. are becoming popular.
Last August, TMX Group offered two months of free trades on its TSX DRK platform for all orders marked “seek dark liquidity.”
The main attraction of dark pools is the ability to execute block trades without affecting the security’s market price before the order is filled. MatchNow also claims to improve prices for both buyers and sellers by executing trades at the midpoint between the bid price and the ask price. Typically on public exchanges, buyers pay the higher ask price, and sellers receive the lower bid price, with traders pocketing the difference.