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April 30, 2002

Yankee Trading Easier in Toronto: Canadians Facilitate Trades in U.S. Currency

By Peter Chapman

Also in this article

  • Yankee Trading Easier in Toronto: Canadians Facilitate Trades in U.S. Currency

Trading on the Toronto Stock Exchange just became easier for traders south of the border.

Two Canadian brokers are promoting technology that lets U.S.-based pros trade stocks directly on the TSE in U.S. dollars. Canada's TD Newcrest, a division of TD Securities, offers FXSheet. ITG Canada, a subsidiary of U.S. agency broker ITG, Inc., offers AutoFX.

Both products were designed to eliminate the U.S. trader's foreign exchange worries. Traders see quotes and commissions in U.S. dollars. They settle in U.S. dollars. All currency risk is borne by the Canadian institutions. For the trader, it's as if the TSE was just another U.S. market.

"Typically, a U.S. trader does not want to get involved in currency conversion," said Andrew Ledbury, a vice president and director of institutional equities technology at TD Newcrest. "This makes life easier for him."

Although U.S. traders have a growing number of options by which to electronically access the TSE, all require dealing in Canadian dollars. Instinet, GL Trade, Belzberg and Bloomberg TradeBook, for example, offer direct access to the TSE order book. SunGard Trading Systems' BNET offers routing to the international desks of Canadian brokers.

Ledbury explains that U.S. traders could create systems that convert Canadian stock prices into U.S. dollars in real-time, but this wouldn't solve the commission problem. Commissions are not set in stone; they're negotiated.

"You must have a

broker on the other end who is prepared to fix

the commission with you," Ledbury said. "We agree on the commission with them. So, what we offer on the desktop is a guaranteed price."

FXSheet is embedded in a trader's Excel spreadsheet software and communicates with TD Newcrest servers via the Internet. Access is over the Internet rather than dedicated circuits because of cost.

"We do support a direct connection for clients who want to do it that way," Ledbury said. "But we did it over the Internet because, for some of these companies, their order flow is small. We didn't want to load them up with a ton of cost."

Once an order reaches the TD Newcrest server it then passes through a gateway into the TSE's systems. The Toronto was the world's first stock exchange to completely automate. Canadian broker dealers interfaced with the bourse electronically. Prominent gateway vendors are KTG, formerly Kasten Chase and now part of ITG Canada; Belzberg Technologies; Reuters and Versus Technologies.

In order to access the TSE directly, U.S. institutions must be sponsored by a TSE member.

FXSheet was built jointly by TD Newcrest and Belzberg, a well-known Canadian routing and order management systems vendor. The technology is free to TD Newcrest customers, two of which are set to go live this month.

Small Orders

Most orders are expected to be small. That's because the average trade size on the TSE is only 1,800 shares. Essentially an electronic order book supported by specialists, the TSE's transparency rules out block trading. Orders likely to adversely impact prices are handled in an active upstairs market.