The Toronto Stock Exchange (TSX) has filed a lawsuit that accuses rival upstart exchange Pure Trading of copyright infringement and of illegally using its trading system specifications.
According to a report by Canadian broadsheet The Globe and Mail, TSX has filed a CDN$101 million lawsuit with the Ontario Superior Court accusing Pure Trading of copying technical documents detailing its own connection and data transmission specs.
Pure Trading is accused of mis-using TSX's technical information in order to speed up its launch and "spring-board" into the Canadian market. TSX alleges that Pure copied protocols and specifications for aspects such as data transmission in order to enable customers to connect to the Pure platform in the same way they link to the TSX's markets, says the report.
The documents were provided to Pure Trading's parent company Canadian Trading and Quotation System (CNQ) subject to a 2002 confidentiality agreement, and shouldn't have been used in the Pure launch, says TSX.
CNQ is gearing up to launch Pure Trading, which will offer trading in TSX-listed stocks, later this year. The platform is based on the X-stream trading engine developed by European market operator OMX.
Ian Bandeen, vice chairman and CEO of CNQ, dismissed TSX's claims as baseless. "The fact that the TSX would initiate a baseless legal claim at this time suggests to our group that they are trying to stifle competition," he says in a statement.
Bandeen says the main issue is the use of the protocol language, Stamp, which has been used for many years by dealers and vendors to connect to Canadian stock and derivatives exchanges. He argues that the protocol was developed to provide cost effective and uniform connectivity to "multiple marketplaces in Canada".
"The TSX has been aware since 2005 of our plans to build and launch the Pure Trading marketplace, and has been aware since 2003 of our use of the STAMP protocol for trading on the CNQ stock exchange," says Bandeen. "Until recently, the TSX has cooperated with CNQ, the participating dealers and the vendors as we went through a full year of testing with the Pure Trading system. We have been completely transparent with our efforts."
CNQ has taken advice from intellectual property lawyers and that it doesn't expect the lawsuit to affect the launch of the Pure platform.
"We are extremely confident of our position and we will not be thrown off course by even one millisecond as we proceed to be the first to introduce a continuous auction market for exchange listed securities that is better, faster and cheaper than what exists in Canada today," says Bandeen.
Pure Trading is just one of a number of alternative trading systems (ATS) setting up in the Canadian marketplace that will compete with TSX.
Liquidnet and Instinet are both setting up platforms for trading Canadian exchange-listed securities, while earlier this year seven of the biggest investment dealers in the country said they were setting up an ATS called Alpha in a bid to increase equity trading efficiencies and make the country more globally competitive.
Last month TSX CEO Richard Nesbitt told delegates at an industry conference that the exchange would fight competition with new technology and services and not just price cuts.
TSX is gearing up to roll out a new dealing platform and pre-trade matching system later this year in a bid to fend off competition from ATSs. The exchange also plans to implement Alternative Trade eXecution (ATX), a "dark liquidity matching" platform, later this year.