Nine out of 10 money managers in Canada plan to use
alternative marketplaces for some of their equity trading
in 2008, a big jump from today
A dramatic shift from a dual-marketplace structure to a multiple-marketplace structure in Canada’s equity market has created a huge tidal wave in technology use that is going to transform the buy-side traders’ trading behaviour and their preferred way to find liquidity in the marketplaces, according to Competitive Metrics’ new report, 2007 Buy-side Equity Trading in Canada: Exchange, Upstairs, ATSs, What’s Next?
The report summarizes interviews with head and senior traders at 28 buy-side firms across Canada. These firms manage C$1.2 trillion in aggregate assets and represent several manager segments.
Competitive Metrics projects that 2008 will be a key turning point for the Canadian institutional equity market. The telephone will be replaced by electronic order routing as the dominant way of trade communications. Electronic trading will finally take off in Canada. Buy-side traders plan to conduct one-quarter of their equity trading electronically and 9 out 10 buy-side trading desks plan to execute some of their equity trades on Canada’s alternative marketplaces.
“The sudden explosion of the number of equity marketplaces is really the catalyst for electronic trading to take off in Canada,” says Jackie Chung, Competitive Metrics president and author of the report. “Canada now has five alternative trading systems and more to be launched soon. With five or six marketplaces to monitor instead of just the TSX, buy-side traders need to turn to technology to help them increase efficiency and keep pace with market movements in multiple venues.
A dramatic change in the buy-side traders’ preferred way to source liquidity is happening as they use technology to access the marketplaces directly. The buy-side traders’ dependence on the brokers is tumbling. Substantially more buy-side traders now prefer to access the marketplaces themselves than those who prefer to fold the trades to their brokers. Buy-side traders have also put together a list of ‘must haves’ that they want for their main desktops to help them find liquidity in different marketplaces.
As technology reduces the buy-side’s dependence on the sell-side, a major change also looms in the buy-side/broker relationship. Buy-side firms in Canada now streamline their broker relationships in droves and concentrate their commissions on a few main ones.
>>The complete article is available at Investment Executive
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