Technology Vendors See Future Growth in Canada
Traders Magazine Online News, July 7, 2011
Despite the failed merger of the Toronto Stock Exchange and the London Stock Exchange, a new era in equities with a greater reliance on technology is still expected to take hold in Canada.
U.S. vendors of electronic trading see opportunities as a result of the changing market structure there. As more alternative venues spring up, traders must deal with the expected increase in fragmentation with more electronic trading tools. Essentially, what has transpired in the U.S. will see another iteration in Canada.
Sang Lee
Venue growth in Canada was prompted by a regulatory changes in 2001; National Instrument 21-101 Market Place Operations and NI 23-101Trading Rules -- known as the "ATS rules."
Canada main trading exchange is the Toronto, which has nearly 60 percent of all trading volume. But new alternatives such as TMX Select, Goldman Sachs and others are expected to pose challenges to current market leaders when they launch. Liquidnet, ITG and Instinet are the only dark pool operators to date.
The expectation is that more venues will force the sellside to hook up to these new trading outlets. Also, brokers will be forced to either upgrade their existing systems or in the case of smaller sellside firms, get the technology to remain competitive.
Sang Lee, a managing partner at the consultancy Aite Group, said trading solution providers can expect to see demand for their services from all sides -- both the buyside and sellside.
"The Canadian market is going through a tremendous amount of market structure changes -- from fragmentation, adoption of more sophisticated strategies and algorithms to smart order routers," Lee said. Couple these technological changes with the growing presence of HFTs and other types of traders, he added, has created a demand for innovation and more product providers.
Vendors are aware that the Canadian equity market is moving towards more algorithms, smart order routers and new trading venues. As more alternative trading venues spring up such as Goldman Sachs' Sigma X and TMX Select, HFTs are becoming a bigger part of the trading landscape, so the need for low-latency solutions is growing, said Mark Skalabrin, the chief executive of Redline Trading, a U.S. provider of low-latency products.
Redline specializes in providing algorithms and smart order routers to both the buyside and sellside. They see the opportunity -- and it is now.
"We're being drawn to Canada by the buyside," Redline chief executive Skalabrin said. His firm is targeting prop traders at Canadian banks and high-frequency traders also. "This electronic market is maturing and becoming attractive to people who engage in low-latency trading."
Prop traders at Canadian banks and the buysiders he's spoken with are looking at smart order routers and crossing engines, as well as algorithms that will help them keep pace in the market.
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