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  Exchanges and alternative trading systems are essential links in the distribution chain for ETFs in Canada. Understanding their com- plex infrastructure helps financial advisors serve clients better.
Kevin Prins, managing director and head of ETFs and managed accounts with Toronto-based BMO Global Asset Management, says choosing one exchange over the other is getting harder as each improves its service.
Stock exchanges are a “vital component” of the asset-management ecosystem, says Daniel Straus, vice president, ETF and financial products research, with Montreal-based National Bank of Canada. ETF portfolio managers rely on “a smooth, liquid and well- led” exchange to manage their portfolios on behalf of unitholders.
Canada has 13 markets through which securities listed on the Toronto Stock Exchange (TSX), NEO Exchange (NEO), TSX Venture Exchange or Canadian Securities Exchange (CSE) are traded.
In mid-March, orders were 10 times the usual volume
“To [choose an exchange], we look at several things, including the quality and dissemination of informa- tion and the feedback we receive from our constitu- ents,” Prins says.
ATS — which include Omega ATS Inc. (operated by Toronto-based Tradelogiq Markets Inc.; Matchpoint Financial Corp. owns the controlling interest), TSX Alpha and Chi-X Canada (the latter is owned by New York- based Chi-X Global Holdings LLC) — don’t list ETFs, but they can trade most of those products on their platforms.
ATS increase competition and play “an important role in pubic markets by allowing alternative means of accessing liquidity, with each venue providing differ-
 These markets can be divided into two groups:
exchanges and alternative trading systems (ATS). The
exchanges review and approve the listing of ETFs, public companies and closed-end investment funds, each of which are subject to various rules.
“When ETF manufacturers want to launch a product, they have to have it approved by the exchange’s regulatory team because exchanges are always responsible for reviewing any listed instrument,” says Jos Schmitt, president and CEO of NEO Exchange Inc., which is owned by Toronto-based Aequitas Innovations Inc.
As of June 30, the TSX listed 766 Canadian ETFs; NEO had 46 listed ETFs as of Aug. 24.
entiated trading services/fees to the market,” according to a BMO report from earlier this year.
Exchanges and ATS use different technology to place buy-and-sell orders, and attract different types of investors and traders by differen- tiating their trading offering, the BMO report states.
Maintaining the infrastructure to swiftly handle high volumes of orders from market makers can be a challenge, as was the case in March, when markets were volatile.
“Around March 17, the number of orders was 10 times the usual
 20 Investment Executive’s ETF Guide 2020
 Mechanics of the ETF marketplace
Financial advisors should understand how to enter ETF orders and how the dealer executes instructions
By Guillaume Poulin-Goyer

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