Canada is experiencing a boom in alternative trading systems (ATSs) that is going to transform the behavior of the buy-side equity traders next year as they turn to technology to source liquidity. According to a recent report by Toronto-based Competitive Metrics Inc., Canada is undergoing a dramatic shift from a dual market place structure dominated by the Toronto Stock Exchange (TSX), and upstairs block trading desks to more of a multi-market structure.
With five ATSs operating right now, plus another three that are due to launch — Canada is undergoing a dramatic change in market structure, according to Jackie Chung, president of Competitive Metrics Inc., who authored the report, “2007 Buy-side Equity Trading in Canada: Exchange, Upstairs, ATSs, What’s Next?” The report is based on interviews with head and senior traders at 28 buy-side firms across Canada, managing C$1.2 trillion.
The study found that one in four buy-side trading desks execute 20 percent of their trades electronically. Chung predicts the development of marketplaces is going to spur significant growth of electronic trading going forward.
“Trading is no longer concentrated in the hands of a few major buy-side firms and is no longer going only to the TSX,” says Chung referring to the Toronto Stock Exchange, an electronic marketplace. “It could go to BlockBook, Liquidnet and new marketplaces that are going to be launched,” she says.
If all the alternative execution venues materialize, then Canada will have eight ATSs next year. Although the U.S. has more than 30 dark pools, this is significant since Canada is less than one-tenth the size of the U.S. market, notes Chung.
In the next year, nine out of ten buy-side trading desks plan to execute some of their trades on Canada’s alternative execution systems, said the study.
This is big change from 2005 when the only marketplace that buy-side traders had to monitor was the TSX. Even with Tradebook and ITG the trade would be executed on the TSX at the end of the day, says Chung.
Chung says that Canada’s shift to a multi-market structure will be a “natural catalyst for buy-side traders to embrace electronic trading with open arms.” “Suddenly there is an explosion of trading venues for them to manage. They can’t use pen and paper any more. They really have to turn to technology to keep pace with market movement and make decisions where to trade,” says Chung.
“2008 will likely be a year of fierce competition for order flow between the TSX and the alternative marketplaces,” and among the alternative venues themselves,” predicts Chung.
But since the TSX is one of the biggest embracers of technology and has made aggressive trading fee cuts, it will be a formidable competitor to the alternative venues in 2008. Even if the TSX loses market share to the ATSs, electronic trading will attract more order flow and TSX will end up with a smaller piece of a bigger pie, says Chung.
>>The complete article is available at AdvancedTrading.com
|
