Alpha explains IntraSpread

With the TMX Group-London Stock Exchange merger out of the way, Maple Group's next step is to convince the Competition Bureau that a monopoly on trading will not harm Canadian investors. It will also need to convince at least two-thirds of TMX shareholders; about 55 per cent voted for the TMX-LSE merger.

Alpha's Jos Schmitt is holding a series of webinars to discuss the Alpha IntraSpread facility, which he says is "still at an early stage." On June 22, for example, IntraSpread's volume was only 90,000 shares. In the webinars, Mr. Schmitt spends some time talking about the two types of IntraSpread orders, Dark liquidity and Seek dark liquidity. Dark liquidity orders are buy or sell orders, resting in IntraSpread with a price improvement of 10 per cent or 50 per cent versus the National Best Bid (for a buy order) or National Best Offer (for a sell order). Example: NBBO is 1.00-1.10. A dark liquidity market with a 10 per cent improvement would be 1.01-1.09, both invisible. As they sit, invisible with size undisclosed, waiting for a Seek dark liquidity (SDL) order, dark liquidity orders move up and down with the NBBO. It is possible to place a price limit, so as long as your price limit is within the NBBO your order -- they are all day order -- remains active. The idea is that a brokerage's order entry system tries to exercise in the dark market, looking for bids and offers that shave the NBBO before moving on to do business on the NBBO.

While all Alpha subscribers can place Dark liquidity orders, SDL orders can only be placed on behalf of retail customers. SDL orders are buy or sell orders that will try to match with one of the dark orders. Mr. Schmitt says sending an SDL order to Alpha has three benefits. First, it comes with a guaranteed price improvement (10 per cent or 50 per cent of the NBBO spread). Second, trading fees are lower, and third, IntraSpread's matching algorithm favours full order execution. Mr. Schmitt also says that by limiting SDL orders to retail traders, more people are comfortable posting Dark liquidity orders with price improvements because they know the orders will not be taken advantage of by sophisticated algorithms and high frequency traders.

by Stockwatch Business Reporter