CANADA - Canadian buy-side institutions are embracing electronic equity trading with the typical institution estimating it would direct one third of its total trade volume to electronic and portfolio trading systems in three years time.
This amount would see Canada catch up to the levels seen in the US. Currently Canadian institutions direct less than a quarter of their overall equity trading volume.
Greenwich Associates’ 2006 Canadian Equity Investor Study, for which Greenwich surveyed 85 portfolio managers and 70 traders at Canadian buy-side institutions, also found an increase in institutional commission allocations to sell-side research, sales and corporate access and a reduction in soft dollar business.
“Our research suggests that the migration of trading volumes from traditional ‘high touch’ executions to electronic and portfolio trading, which has been a gradual process up to this point, is already accelerating and will speed up even further in coming months,” said Greenwich Associates consultant Lea Hansen (pictured). “Indeed, among the largest and most actively trading Canadian institutions, the proportion of total volume done through self-directed electronic trades jumped from 5% in 2005 to 26% in 2006.” By 2009, the typical Canadian institution expects to be doing 8% of its total trading volume through algorithmic trades, 12% through non-algorithmic direct-to-market trades, 3% through crossing networks and 10% through portfolio trading systems.
Separately, a growing proportion of equity brokerage commission payments (currently more than half) are being allocated by institutions to compensate brokers for research, sales coverage and the facilitation of face-to-face meetings with company management teams. At the same time, Canadian institutions are cutting back on soft dollar allocations.
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