Alternative trading systems (ATSs) are expected go mainstream next year as electronic trading becomes more popular, says a report.
The Competitive Metrics report, 2007 Buy-side Equity Trading in Canada: Exchange, Upstairs, ATSs, What’s Next? finds that buy-side traders plan to conduct one-quarter of their equity trading electronically and nine out of 10 buy-side trading desks plan to execute some of their equity trades on Canada’s alternative marketplaces.
“The sudden explosion of the number of equity marketplaces is really the catalyst for electronic trading to take off in Canada,” says Jackie Chung, Competitive Metrics’ president and author of the report.
“Canada now has 5 alternative trading systems and more to be launched soon. With 5 or 6 marketplaces to monitor instead of just the TSX, buy-side traders need to turn to technology to help them increase efficiency and keep pace with market movements in multiple venues.”
Meanwhile, a dramatic change in the buy-side traders’ preferred way to source liquidity is happening as they use technology to take more direct control of their order flow and access the marketplaces directly. The buy-side traders’ dependence on their sell-side counterparts is tumbling. Substantially more buy-side traders now prefer to access the marketplaces themselves than those who prefer to fold the trades to their brokers.
There are also signs that a major change is looming in the buy-side/broker relationship as technology reduces the buy-side’s dependence on the sell-side. Buy-side firms in Canada now streamline their broker relationships in droves and concentrate their commissions on a few main ones.
Head and senior traders at 28 buy-side firms across Canada were interviewed for the report. These firms manage $1.2 trillion in aggregate assets and include five manager segments.
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