TMX Leading the Way Forward for Canada's Markets

TSX MOC MODERNIZATION TMX Leading the Way Forward for Canada’s Markets What is TSX MOC?

TMX is firmly committed to Introduced in 2004, TMX’s Market On Close (“TSX MOC”) facility plays a advancing the evolution of our vital role in Canada’s equities markets and broader financial services capital markets to ensure Canada industry: setting the official closing price for eligible Toronto Stock remains relevant, vibrant and Exchange (TSX) and select TSX Venture Exchange (TSXV) listed issues. competitive on the global stage, today and long into the future. In Operating as an electronic call market, the TSX MOC facility aims to an environment where change provide equal access and opportunity for investors looking to source is the only constant, all of our liquidity and participate in trades at the closing price, efficiency and stakeholders, including market accuracy in setting the closing price, and reduced volatility at the close. participants, individual investors and listed issuers, require adaptive and responsive solutions Wide Implications to gain a winning edge. TSX MOC serves a wide range of stakeholders TMX is proud to announce our TSX MOC Modernization Proposal. TMX is the definitive source for equities closing prices in Canada. This exciting vision for a new End-of-day valuations determined via the TSX MOC facility serve and improved Market on Close the industry in a variety of important ways, including: facility is the culmination of more • Net Asset Value (“NAV”) calculations than a year and a half of work by for the fund management industry our team in close consultation with a wide range of participants • Portfolio and index balancing across our client community. valuations The goal of the new TSX MOC TSX MOC MODERNIZATION - TMX LEADING THE WAY FORWARD FOR CANADA’S MARKETS • Benchmarks for index related securities, facility is to provide an improved swaps and options trades trading experience for our clients and better serve their needs for • Daily reference prices for retail investors, enhanced liquidity at the close advisors, and media outlets of the market and efficiency in determining Canada's closing prices. On behalf of our entire A collaborative effort markets team at TMX, I want to sincerely thank all of those who A client-first approach to improving TSX MOC participated in this important initiative designed to reimagine Financial markets continue to evolve at an unrelenting pace, and as a and ultimately reinvent a vital result, the day-to-day needs of investors and the challenges they face mechanism within our equities in remaining globally competitive in the midst of this ever-changing marketplace. landscape are constantly shifting. The rise of passive investing and ETF trading over the last few years has resulted in increased trading volumes at the close of the market and serves to highlight the growing importance of the closing price as a benchmark.

In 2019, based on industry feedback, TMX’s equity markets team embarked on a large-scale consultation process to explore ways in which we could improve the TSX MOC facility. TMX’s ongoing commitment to providing fair and transparent markets for all participants requires a measured and thoughtful approach, considering Kevin Sampson the interests of the full scope of participants and gauging the potential President, Equity Trading, TMX impacts proposed changes will have on the broader ecosystem. 2 Our process gathered valuable insights from a cross-section of stakeholders, across Canada and globally, including representatives from buy-side and sell-side institutions as well as proprietary trading firms via surveys, open forums, advisory committees, and one-on- one discussions. TMX and all stakeholders were unified in the key objective; to build a world-class closing auction that effectively meets the liquidity and execution needs of Canadian and global investors.

AT A GLANCE* Confronting issues and finding solutions The consultation process served to clearly identify three key areas to address in revamping the TSX MOC facility: 69MM Transparency Average Daily Shares  ISSUE Traded in the TSX MOC Traders need more  ACTION information. TSX MOC TMX explored a new TSX MOC currently provides a single communication framework to enable imbalance message at traders to make more informed 3:40 pm, 20 minutes prior decisions during the closing session, $2.3B to the close of the regular with increased frequency and Average Daily Value trading session at 4:00 p.m additional content in messaging. Traded in the TSX MOC with limited content.

Alignment with global markets

 ISSUE 932  Symbols Traded TSX MOC is a global outlier. ACTION in the TSX MOC The TSX MOC model differs TMX examined closing auction facilities from similar facilities around the world to gain an understanding

offered by global exchanges of their unique characteristics TSX MOC MODERNIZATION - TMX LEADING THE WAY FORWARD FOR CANADA’S MARKETS in some important ways, and incorporated our learnings in including frequency and developing the new, improved TSX detail of information MOC. Bringing the TSX MOC model in 67 communicated during the line with global standards and adopting Firms Participated trading day. The current features most valuable to trading in the TSX MOC uniqueness of today’s TSX participants is designed to increase MOC limits participation participation from outside of Canada. from international investors.

Consistency of execution

 ISSUE Investors are not  ACTION looking for surprises. The new TSX MOC facility seeks to *Jan - June 2020 Some participants cited attract increased investor participation inconsistencies of TSX MOC at the close by introducing mechanics liquidity which can erode to increase flexibility, give more participant confidence and visibility into the MOC, and dampen deter them from utilizing volatility. This will serve to enhance the the TSX MOC as a user experience and create reliable liquidity event. and representative closing price benchmarks, instilling confidence among traders and investors. 3 ❶ Enhanced transparency The Increase imbalance message content and frequency of communication. • Add 6 new fields of TSX MOC order book information (currently 4 fields only) New • Imbalance message to be sent every 10 seconds (currently sent only once)

Newly defined imbalance period ❷ TSX MOC to align with global models • Imbalance period starts at 3:50 p.m. PROPOSAL (currently 3:40 p.m.) • Allow entry of new Market on Close TMX is confident that the significant efforts orders, with no cancels or amends undertaken alongside our client community (currently no new Market on Close to reimagine our TSX MOC facility will reap orders allowed) wide-reaching and long-lasting benefits. • Allow entry of Limit on Close orders on either side and any volume, with The new TSX MOC facility introduces three high no cancels and aggressive price level changes, each designed to address the amends only (currently limited to issues of transparency, alignment with global Limit on Close orders with side, markets, and consistency of execution. volume and price restrictions)

❸ New freeze period IMBALANCE MESSAGE CONTENT Designed to mitigate volatility and help prevent unexpected price and imbalance Current Fields movements. Randomized start time ❶ ADDED NEW FIELDS • Near Indicative to mitigate speed advantages. • Symbol • Paired Volume Closing Price • Market Order • Far Indicative • Imbalance Side RANDOMIZED START RANDOMIZED Imbalance Side Closing Price

• Imbalance Volume START RANDOMIZED START TSX MOC MODERNIZATION - TMX LEADING THE WAY FORWARD FOR CANADA’S MARKETS • Market Order • Price Variation RANDOMIZED START RANDOMIZED • Reference Price Imbalance Volume Indicator START RANDOMIZED START RANDOMIZED START RANDOMIZED

START RANDOMIZED START RANDOMIZED START RANDOMIZED

START RANDOMIZED START 7:00 am 3:50 pm 3:56RANDOMIZED pm START RANDOMIZED3:57 pm 4:00 pm 4:10 pm

START RANDOMIZED START RANDOMIZED START RANDOMIZED RANDOMIZED STARTSTART RANDOMIZED START RANDOMIZED START RANDOMIZED

START RANDOMIZED START PME MARKET PREIMBALANCE IMBALANCE RANDOMIZED START RANDOMIZED FREEZE (if needed) STATE Order gathering ❷ Advertise & solicit ❸ Stabilization Solicit additional START RANDOMIZED START liquidity RANDOMIZED START RANDOMIZED

START RANDOMIZED START MESSAGING ❶ IMBALANCE MESSAGESRANDOMIZED PUBLISHED START RANDOMIZED EVERY 10 SECONDS START RANDOMIZED START RANDOMIZED START RANDOMIZED

START RANDOMIZED START ORDER MARKET ON CLOSE (“MOC”) ORDERS MOC ORDERS RANDOMIZED START RANDOMIZED ENTRY • New orders, CXL, CFO • New orders, No CXL, No CFO START RANDOMIZED START RANDOMIZED START RANDOMIZED PRINTS CLOSING

START RANDOMIZED START LIMIT ON CLOSE (“LOC”) ORDERS LOC ORDERS RANDOMIZED START RANDOMIZEDPEGGED LOC ORDERS LOC ORDERS PME CLOSING PRINTS (if needed) (if PRINTS CLOSING PME • New orders, CXL, CFO • New orders, No CXL, CFO to • Re-priced to Reference Price Opposite side, more aggressive price START RANDOMIZEDbefore START close if more aggressive less than size of RANDOMIZED START RANDOMIZED imbalance, limit price • New orders, No CXL, No CFO within PME % START RANDOMIZED START RANDOMIZED START RANDOMIZED

START RANDOMIZED START RANDOMIZED START RANDOMIZED

START RANDOMIZED START RANDOMIZED START RANDOMIZED CHANGE FROM EXISTING TSX MODEL 4 START RANDOMIZED START RANDOMIZED START RANDOMIZED

START RANDOMIZED START RANDOMIZED START RANDOMIZED

START RANDOMIZED START The growing significance of the " close has heightened the importance of efforts to modernize the TSX MOC mechanism – to improve transparency Next and facilitate greater participation. _ " Hubert De Jesus, Global Head of Market Structure and Electronic Trading Steps BlackRock We intend to submit our TSX MOC Modernization proposal to regulators We commend TMX Group for engaging a for approval and expect that it will be " diverse set of stakeholders to participate published for industry comments in Q4 in a collaborative and iterative process 2020. As part of the regulatory comment to modernize the Canadian market-on- process and through ongoing stakeholder close (MOC). The new TSX MOC facility will consultations, we will be soliciting input create more transparent opportunities for on industry readiness and assessing the full scope and scale of dependencies to long-term investors, both domestic and determine an appropriate launch date for global, to react to MOC imbalances. the new TSX MOC, with the earliest date _ " being mid Q2 2021. Rob Gouley Brent Robertson Principal, Trading Managing Director, Trading OMERS OMERS Join the conversation

 TMX invites all interested participants The collaboration with TMX regarding and stakeholders to review the detailed " the overall process has been exceptional. MOC proposal, TSX MOC Proposal - The proposal addresses the opinions and Detailed Guide. concerns of a diverse group of market  We welcome all comments and participants and reflects how open TMX suggestions as we finalize this proposal was to the countless feedback they for an improved TSX MOC facility. received. The proposal will modernize Please reach out to your TMX account TMX’s MOC facility and will benefit all manager to provide any feedback investors by providing more transparency or for more information. and flexibility to the MOC process. It will allow active asset-managers to provide liquidity in one of the most important segments of the trading day. _ " Mehmet Kinak, Global Head of Systematic Trading and Market Structure T. Rowe Price Investment Management

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