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FLASHBACK FRIDAY: Catching Up

Traders Magazine Online News, July 7, 2017

John D'Antona Jr.

Stock trading in the Great North had always been the purview of a select number of big banks and done via telephony using human sales traders. Electronic tools and dark pools were barely used as Canadian regulations drove trades into the public markets just a few years ago.

But now things are different. It’s 2017 and electronic trading, dark pools and commission spend have all played an integral part of Canada’s unique market structure. But have the changes over the past six years made the market better? Cheaper?  

Doug Clark, Managing Director, Head of Research, ITG Canada recalled that Canada has historically been a global leader in innovating secondary equity trading. It was among the first to introduce electronic trading back in 1977, ETFs in 1993, decimalization in 1995 and the trade-at concept in 2012, he said.

“Canada has never been shy about wandering down untraveled paths,” he recently told Traders Magazine.

He continued to tick off the changes in the Great North - new markets such as chi-X, Pure, MatchNow, Alpha and Omega introduced a new wave of change and innovation. Alpha had introduced the first participant segmenting mechanism, with its IntraSpread dark pool, which limited the active side to just retail investors (a mechanism NYSE would later replicate with their RLP program).

“While IntraSpread would become a victim of the 2012 dark rules, the barn door was opened wide and the wave towards segmentation would dominate marketplace ‘innovation’ to present day,” he said. “The Alpha speed bump discouraged large institutional liquidity seekers, while delivering pure retail flow to market makers.”

Other venues introduced mechanisms mimicking true real market making facilities to help larger firms better internalize retail flows, to the frustration of some liquidity starved institutional investors.

Clark said that the Canadian market of 2017 is arguably the most complex of any secondary equity market in the world, but unlike the days of yore, much of today's innovation and complexity is aimed at aiding intermediaries.

“In this regard at least, the lesson for other jurisdictions is not to emulate the complexity of Canada, but rather to steer in the other direction,” Clark said. 

 

The following article originally appeared in the July 2011 edition of Traders Magazine

 

Catching Up

Canada Follows U.S. Into Electronic Trading Era 

Much of the talk these days in Canada's financial industry centers on the battle being waged for the Toronto Stock Exchange, between the London Stock Exchange and the Maple Group bank consortium. One offer, it is said, would remake the stock trading industry into a global hot spot. The other would turn the clock back, relegating Canada to yesteryear.

But behind the headlines, an arguably more consequential meat-and-potatoes drama is taking place, as Canada's stock market rushes helter-skelter into the electronic era.

In one of the latest developments, TMX Group, parent of the Toronto, is set to launch an ECN-type platform this month, in a bid to recoup market share lost to a host of electronic upstarts.

Once the only venue in Canada where traders could buy and sell stock, the exchange now finds itself being crowded out by newer, cheaper and more technologically advanced competitors.

TMX Group's new venue, TMX Select, will cater to high-frequency traders and retail day traders. The alternative trading system will seek to distinguish itself with its pricing and a few other attributes.

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