Electronic trading reaches tipping point in Canada: study
U.S. broker-dealers cornering Canadian market in algorithmic trading solutions
Monday, February 26, 2007
By IE Staff
More than one-third of the stock transactions originating in Canada now are executed by computers programmed to maximize trading efficiency, a study has found.
The report from Forefactor Inc., an independent research and consulting firm specializing in capital markets, also suggests Canadian banks may have lost first-mover advantage in algorithmic trading.
The study “indicates electronic trading is reaching a tipping point in Canada with U.S.-based firms aggressively pursuing the opportunity,” Forefactor said.
It found that algorithmic trades -- typically slicing large transactions into an array of smaller deals that have less impact on the market -- account for 36% of the total Canadian trades conducted by brokers participating in the study.
However, “no Canadian bank-owned broker-dealers are in the top tier” of firms pushing algorithmic trading and Forefactor president Renee Colyer believes they are missing an opportunity.
“Commercially available algorithms, primarily from U.S. brokers or vendors, are deemed to be rudimentary for the most part and are not generally seen to be addressing the unique characteristics of the Canadian capital market,” Colyer said.
The study found institutional investors rated Investment Technology Group of New York as the leading algorithmic trading provider, followed by Credit Suisse First Boston and Morgan Stanley.
“The Canadian broker-dealers have the advantage of knowing this market,” Colyer observed. “Whether they partner with a U.S. firm or offer a proprietary suite of algorithms directly, they need to pick up the pace.”
The Forefactor report noted that “although the disadvantages of electronic trading technology such as reduced price discovery, potential for error and market structure bottlenecks are significant, study participants maintain that one cannot afford not to overcome them.” |
