Canada Gets Up to Speed With Electronic Trading
- Saturday, November 1, 2008, 11:04
- Capital Markets
- Add a comment
The launch on Sept. 26 of Alpha Trading, with its consortium of big bank backers, marks the latest milestone in the rapid development of electronic trading in Canada.
Until recently the Toronto Stock Exchange was the sole venue for stock trading in Canada, but a host of alternative platforms are now coming into play. Canadian Trading and Quotation System’s Pure Trading was first to market with a cross printing facility launched in October 2006, which it followed with a continuous auction market for TSX-listed securities in September last year. Other alternative platforms to come onstream include ITG Canada subsidiary TriAct Canada Marketplace’s MATCH Now service, Perimeter Financial’s OMEGA ATS and BlockBook dark liquidity pool, and Instinet’s Chi-X Canada ATS.
Meanwhile, Alpha Trading – which uses the Microsoft Office suite to automate its internal operations and Microsoft SQL Server for its data warehousing – has Canada’s eight largest dealers and the largest buy-side institution as its shareholders, says Jos Schmitt, the organization’s chief executive. When live it will trade all the securities listed on the TSX and TSX Venture Exchange, as well as offer data distribution and data services.
“When you look at the functionality, we are trying to service multiple types of segments – the dealer community, the high-speed dealer community, the institutional community, and the retail community – with the different types of components they need,” says Schmitt. To this end, it will provide a low latency, high-capacity trading environment to meet the demands of algo traders, a form of inside match order type to support institutional investors, and a trade-through protection capability that will aid the dealers, he notes.
The challenge, as in all markets, will be for these various alternative venues to attract and maintain sizable liquidity flows on their platforms. And while it has been a mixed success story to date, the multi-choice environment looks set to stay. As Stephen Plut, managing director with Toronto-based software vendor Integrated Transaction Systems, observes: “The idea is the multi-markets will drive down costs, to allow more cost-effective trading. So far it’s in the early stages, but the multi-market activity is definitely picking up.”
And this marketplace shift presents significant opportunities to software firms with the appropriate tools. For example, Fidessa has an integrated front- to middle-office solution providing trading, market data, order management and execution capabilities.
The vendor’s technology enables its sell-side user firms “to make sure they can say to their customers on the buy side that they have the ability to connect to all these additional venues to help ensure best execution,” says Ron Lee, head of Fidessa’s Canadian office.
In addition, Fidessa has a customizable smart routing capability that is integrated into its trading solution. As a result, users are able to tailor their trading parameters and preferred markets, to define “what to do in this case, where to grab liquidity in that case,” so that they have choice in their trading strategy while still being able to adhere to the regulators’ best execution requirements, notes Lee.
Its platform also supports direct market access (DMA), which in the Canadian market is a variant known as sponsored DMA. In this model, rather than transactions flowing direct from the buy side to the exchanges, they travel through the sell side’s systems before going to the exchange, Lee explains.
Fidessa’s key software components have been built on Visual Basic. It is though moving into a .NET environment, since that is what its customers are migrating to, says Lee. Meanwhile, all the firm’s front ends run on Microsoft operating platforms, whether XP or Vista, he adds.
For its part, ITS has been offering a smart order routing product on a service bureau basis for about the last year. “The securities regulators in Canada have set up a framework to allow a multi-market environment, but there are regulations about trade-throughs,” explains Plut. “Because of that, the broker/dealers are responsible for making sure they do not trade through a better quote on another exchange. So that has spurred the development of smart order routers.”
However, there are discussions at present as to whether the trade-through onus should be on the trading venues, notes Plut. Several therefore have developed or plan to launch a trade-through protection capability. Alpha, as Schmitt notes, is one. The Toronto Stock Exchange has indicated it will try to launch some form of smart order router/trade-through protection tool in the future as well, says Plut.
ITS also provides a DMA software capability, which its bank customers run as an enterprise client and then offer as a service in turn to their customers, says Plut. “DMA is a big line of business, and it will probably continue to grow based on smarter algorithms and the buy side taking more responsibility for their own trading decisions. And then to facilitate that usually you need to run it through a smart order router, to prevent those trade-through situations.”
As for its technology, ITS is a Wintel shop, notes Plut, with both its enterprise customers and service bureau supported mainly on Windows Server 2003.
“Our application was originally multi-platform,” says Plut. “But as things have evolved we’ve found our customers are leaning more towards the Windows platform for manageability reasons, and commonality to their other platforms.”
