New study finds more than one-third of total trades originating in Canada
are now executed algorithmically. Buy-side says Canadian dealers are not
in the picture.
TORONTO, Feb. 20 /CNW/ - Forefactor Inc. today released the results of a
research study that indicates electronic trading is reaching a tipping point
in Canada with U.S. based firms aggressively pursuing the opportunity. The
study, entitled Perspectives on Algorithmic & Electronic Trading in Canada:
Integration. Opposition. Evolution. shows that U.S. players in the Canadian
market are seen by institutional investors to be leading the pack as algorithm
vendors. No Canadian bank-owned broker-dealers are in the top tier.
The research results reveal that algorithmically executed trades account
for 36% of total trades originating in Canada and executed by reporting
brokers participating in the study. With the percentage of algorithmic trading
by institutional investors reaching critical mass due to greater
sophistication than perceived or anticipated, Renée Colyer, President of
Forefactor Inc., believes Canadian dealers 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", said Renée Colyer.
Institutional investors say Investment Technology Group (ITG) Inc., a New
York based agency brokerage and technology firm, currently leads the pack
followed by Credit Suisse First Boston and Morgan Stanley.
"The Canadian broker-dealers have the advantage of knowing this market.
Whether they partner with a U.S. firm or offer a proprietary suite of
algorithms directly, they need to pick up the pace." said Renée. "In reviewing
algorithm software, the buy-side indicated that U.S. dealers outflank Canadian
dealers in terms of both the level of product sophistication and support."
The demand for electronic trading systems and algorithms is being driven
by foreign investors seeking participation in the Canadian market, the
increasingly global trading environment and more sophisticated Canadian
buy-side clients. The study notes that buy-side desire for greater control
over trade execution and associated commission compression is a key driver for
adoption of electronic trading systems by Canadian broker-dealers. 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.
Based on the findings in the study, Forefactor Inc. believes that the
first-mover advantage may already be gone. Canadian broker-dealers are
examining their strategies for offering algorithmic trading solutions which
may include partnering with a U.S. firm, launching proprietary products or
both. For ease of access to foreign markets, there appears to be a trend
toward partnership arrangements - the TD Securities/Goldman Sachs agreement
and CIBC/Bank of America white-label offering being examples of two such
deals.
About Perspectives on Algorithmic & Trading in Canada: Integration.
Opposition. Evolution.
Perspectives is a syndicated research study prepared by Forefactor Inc.
undertaken with buy/sell-side market participants, regulators, and technology
providers/marketplace operators. The study is a composite of 4 individual
reports representing perspectives on algorithmic trading from each participant
group as well as supporting numerical analyses.
Data collected for this study were captured through two avenues - 80
in-depth telephone or in-person interviews with target respondents, and a
self-administered survey. The in-depth interviews explored participant
experiences and perspectives on algorithmic trading within the Canadian
capital markets context. Interviews were conducted from April 17th 2006 to
November 6th 2006.
The self-administered survey was designed to deliver hard numbers on
algorithmic trading as a proportion of total trades and related information on
execution venues, algorithmic strategies used, their impact on passive/active
trading strategies, pricing, etc. Data was generated from a sample of hedge
funds, mutual funds and pension funds representing over 1.3 trillion CAD in
Canadian assets under management as well as 21 of the top 25 broker dealers by
value traded.
About Forefactor Inc.
Forefactor Inc. is an independent marketing research and strategic
consulting firm specializing in capital markets. Principals of Forefactor
combine their experience in design and execution of research with expertise in
investment banking, equity research, investor relations and venture capital to
offer consulting services in the areas of corporate development and strategy.
For more information on Forefactor Inc. go to: www.forefactor.com
For further information: executive summary of the report or to schedule
interviews with Forefactor Principals - Renee Colyer or Jeannette Tanguay,
please call Judie Thom at (647) 668-9445 or e-mail judie.thom@forefactor.com
