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Canadian ATS Market Getting Crowded at Trader’s Narrative

Canadian ATS Market Getting Crowded

canadian ats tradingJust a few short years ago no one in Canada had any other platform to trade on other than that provided by the Toronto and Montreal Exchanges. If you want to get technical, there were “dark pools” but you’d have to be an institution to have access.

Now the Canadian market is bursting at the seams with alternative trading systems:

Pure Trading
I wrote about Pure Trading last year: Canada finally gets an ECN. It has come online and for the most part is trading without any major hiccups.

But Pure doesn’t really have any serious liquidity. To give you a sense of what I mean, consider their November 2007 stats:

Trades: 29,991
Total Volume: 5,400,100
Total Value: $376,379,506

Alpha Trading Systems
Alpha ATS is being created by a partnership between all the major financial players in the Canadian market: BMO Capital Markets, Canaccord Capital, CIBC World Markets, National Bank Financial, RBC Capital Markets, Scotia Capital and TD Securities. The system is expected to be an algorithmic traders delight - able to match almost 5000 trades/second and routing to other exchanges or ATS for price improvement. It is being patched up by Capco and will launch sometime in 2008.

Since the backers are major liquidity suppliers, you can expect it to have some serious numbers right out of the gate.

Omega ATS
Omega is the result of a partnership between Perimeter Financial, MarLar Group and Swift Trade. Perimeter (see below) will provide the technical know-how and Swift Trade, as the largest proprietary firm in Canada, the liquidity. I have no idea who MarLar is or what they bring to the table.

Omega has gotten a wobbly start. They were criticized by the street for rushing into implementation without giving their potential customers time to iron out the technical wrinkles. And just this week the owner of Swift Trade, Peter Beck, was slapped by the Ontario Securities Commission for lying about the beneficial ownership of Barka, the company that employs most of the traders on Swift Trade’s system.

Apparently, Beck mislead the OSC when he didn’t disclose that his wife and father were controlling owners of Barka - creating a non-arms length legal relationship. I can’t say that I’m surprised. All I’ve heard about Swift Trade, from former traders, managers and regulators has been pretty negative.

Instinet: Chi-X Canada
Instinet’s alternative trading system will be called Chi-X Canada (chi, as in the 22nd letter of the Greek alphabet: x) similar to its European counterpart launched in April 2007.

Unlike the others, Instinet is an old hand at building flourishing ATS (or ECNs) and by referring to a successful brand in Europe, they hope to build trust in potential customers. Instinet’s owners, Nomura Securities, is a deep pocketed liquidity supplier.

Bloomberg: TradeBook
TradeBook is an institutional “dark pool” which operates in Canada. They are not open to retail clients as far as I know. TradeBook provides clients with anonymous & direct access to equity, futures and foreign exchange markets. It allows traders to bypassing market makers and specialists to trade directly with each other.

Liquidnet Canada
Liquidnet is a US “dark pool” operator which got regulatory approval to implement their ATS platform in Canada last year. They went live in October 2006.

Targeting the institutional order flow, LiquidNet provides an electronic marketplace where traders can buy and sell large blocks of equities directly and anonymously.

TriAct Canada Marketplace
TriAct is an all in one, “dark pool”, institutional and retail ATS:

Smart routers receive a synopsis of the content of MATCH Now’s dark book. They only route orders to MATCH Now if a potential match exists. If no potential match resides in the dark book, the order is not sent to MATCH Now and instead routes directly onto another marketplace.

Perimeter: BlockBook
As the name implies, BlockBook is an institutional ATS specializing in the trading of large block trades. According to their website, “Trading is done anonymously and without revealing side, size, or price in order to minimize the market impact of any trade and inhibit fishing and gaming.”

TSX & Montreal Merge
So what are the incumbents doing to face all these new challengers? They’re joining forces.

Well, technically Toronto is buying out the Montreal derivatives exchange. On Monday, they announced a $1.3 Billion deal where MX shareholders will own 18 per cent, and TSX investors will hold 81 per cent of the new TMX Group. Don’t ask where the errant 1% will go to find an owner.

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3 Responses to “Canadian ATS Market Getting Crowded”  

  1. 1 Robert Young

    Nice story, but for the record: Liquidnet Canada began trading on October 24th 2006. Based on the most-recent statistics published by Market Regulation Services (Canada’s independant market regulator), Liquidnet is the early volume-traded leader among Canadian ATSs. Unlike many other ATSs, Liquidnet’s focus is on block trading: average trade size in the 3 month period Sep-Oct was just over 103,000 shares, compared toa TSX trade size of a few hundreds of shares.

  2. 2 Babak

    Thanks Robert, I made a boo-boo on Liquidnet and have corrected it.

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