By John Tilak and Fergal Smith
TORONTO (Reuters) - A rare outage at Canada's major stock exchanges could dent the credibility of operator TMX Group Ltd <X.TO> and encourage investors to explore alternative trading channels, fund managers and traders told Reuters.
Canada's stock market suffered a partial shutdown on Friday, forcing TMX to halt trading more than an hour early. TMX has since said the exchanges will resume trading on Monday after "internal technical issues" were resolved.
The outage sent investors to TMX competitors and exchanges in New York that listed Canadian companies, traders said. Some of Canada's biggest companies - including the likes of Suncor Energy <SU.TO> <SU.N>, Enbridge Inc <ENB.TO> <ENB.N> and Barrick Gold <ABX.TO> <ABX.N> - are listed both in Toronto and New York.
While the shutdown occurred on a low-volume trading day, it highlighted the technological challenges faced by exchanges such as TMX, and the risks to reputation that come with them.
"It is not a good thing for the exchange or the investors. It is lost business for TMX and lost credibility. It makes investors look elsewhere," said David Cockfield, portfolio manager at Northland Wealth Management.
Cockfield said he expects traders to take defensive steps: "They will say, 'Maybe I better establish alternative trading routes. If the TMX goes down on me again, I don't want to be caught twice.'"
TMX's exchanges in Canada, which include the Toronto Stock Exchange, Toronto Venture Exchange, TSX Alpha Exchange and the Montreal Exchange, account for about 61 percent of trading on the world's sixth-largest stock market, according to official data.
'DATA DARK AGES'
Some traders and fund managers said it was still too early to assess the full extent of the damage from Friday's outage.
Jos Schmitt, chief executive of NEO Exchange, said no one wins from a shutdown.
"It is bad for the Canadian markets' reputation overall," Schmitt told Reuters, adding that he was concerned about what he saw as complacency over a lack of real-time market data.
"We need to solve the real industry-wide issues and we encourage the Canadian Securities Administrators to address these issues and help bring us out of the data dark ages," Schmitt said.
TMX said on Saturday that the disruption was caused by a "hardware failure in a central storage appliance of the trading system", and noted it was not the result of a hack.
Asked for additional comment on Sunday, a TMX spokeswoman referred to the company's statement on Saturday.
"It puts people on heightened alert," said Diana Avigdor, head of trading and portfolio manager at Barometer Capital Management. "The TMX has to manage damage by being very straightforward and clear with what backup systems they will have going forward."
Canada's stock market last suffered a major outage nearly a decade ago, when a system fault linked to data feeds shut down trading for a full day in December 2008, including on the small-cap TSX Venture Exchange.
Most of the trading volume on Friday was transferred to other markets, such as Chi-X, Pure Trading and MATCHNow, as well as to inter-listed stocks in the United States, said Peggy Bowie, senior trader at Manulife Asset Management.
Representatives for ChiX, Pure Trading and MATCHNow were not immediately available, or could not be reached, for comment on Sunday.
When asked on Friday whether the regulator was conducting an investigation into the outage, the Ontario Securities Commission said only that it was in contact with TMX. The OSC declined to comment on Sunday.
In Saturday's statement, TMX chief executive Lou Eccleston apologized to clients and said the company was committed "to applying the lessons learned from this incident to help us prevent such issues from recurring in the future."
(Reporting by John Tilak and Fergal Smith; Editing by Denny Thomas and Daniel Wallis)