Trader’s Narrative

Ever since Google’s breathless announcement more than a year ago that they were going to offer real time stock quotes to everyone, I’ve been waiting to see if they would make good on their promise.

Well, it took much longer than they or anyone else thought but you can now get “real time” data for NASDAQ traded securities on the internet for free.

I put real time in quotes because the data is refreshed every second and only the trades that cross on the NASDAQ platform will be transmitted. So trades that take place on the NYSE, AMEX and other ECNs are not included. This is a key factor and will become more so as competing platforms continue to attract trades away from traditional exchanges. Just be aware that you are not getting the complete picture.

And that means that no matter how interesting this announcement is, no serious trader is going to cancel their data subscription just yet. But for everyone else, it is a nice little bonus to be able to have just this much more accurate stock prices.

I’m curious but haven’t found anything regarding how exactly this works or what sort of deal was struck. Selling real time data was and is the bread and butter of traditional trading platforms such as NYSE and NASDAQ. Obviously the rules have changed.

For now the data will only appear in the top search engine result when you type in a stock symbol, otherwise known as the OneBox:

But soon the data stream will be diverted to flow into the large charts. And although Google spearheaded this initiative, the NASDAQ free real-time data partnership includes Dow Jones & Co. affiliate sites such as CNBC, WSJ, MarketWatch and Barron’s. So keep an eye out for it on those sites as well.

As if it needs to be said: I would strongly recommend against using this data service to actually place trades intra-day. Especially in fast moving market conditions. But if you are swing trading or position trading and don’t particularly care about the sort of fill you get, I suppose it can be a good “backup” quote provider or sorts.

Just 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.

So after all that breathless preamble… this?

Interactive Brokers (IBKR) faltered right out of the gate and kept stumbling.

Oh well.

It’s easy to be neutral when you don’t have any vested interest - I didn’t get allocated any shares. And I didn’t like the market action so I stood aside. Disappointing.

On the plus side, I narrowly skirted becoming a crystal ball gazing, tarot-card slash palm reader. IBKR didn’t open at $32 as I had predicted. It opened at $33. And it didn’t hit $35. It didn’t even hit $34. It just petered out.

Today I was also keeping an eye on another security: TSX Group Inc. (TSE:X) - the holding company for the Toronto Stock Exchange. Yesterday their share price was pounded by news that a consortium made up of all six Canadian banks (BMO Capital Markets (TSE:BMO), CIBC World Markets (TSE:CM), National Bank Financial (TSE:NA), RBC Capital Markets (TSE:RY), Scotia Capital (TSE:BNS) and TD Securities (TSE:TD)) plus Cannacord Capital (TSE:CCI) would set up their own ECN to compete with it.

The announcement was just that, an announcement. And to show how early they are in the project, they don’t even have a name picked out for the ECN and are using the code-name, “Alpha”. So obviously yesterday’s panic selling was a tad overdone. Today it gapped up and recovered all morning.

I’ll continue to watch both IBKR and TSX Group.

BATS is a new ECN that is getting a lot of attention. It was founded by David Cummings, who previously started up Tradebot Systems and previous to that was a wheat trader. The upstart company is located in Kansas, away from the major financial centers. Yet it has grown considerably in just a few years. It’s goal is to become a competitor to NASDAQ by undercutting them in price.

If you’re using IB it is one of the ECNs that you can get routed to from the SMART routing algorithm. If you are looking at level II quotes, it shows as CINN. Right now it is a ‘matching engine’ only but BATS has already filed with the regulatory agencies for full exchange status.

Here is an Economist article for more details (don’t know for how long it will be up).

Pure Trading is a new ECN being implemented by CNQ to trade Canadian listed equities. It will use the X-Stream trading engine (by OMX of Sweden) with modifications for Canadian trading rules. It will offer 3 protocols: STAMP, used exclusively in Canada; FIX, the international standard and direct API connection. Pure will introduce much needed competition to the ancient and inefficient TSX platform.

Pure will be available to both retail and institutional traders through all direct access brokers operating in Canadian markets. The speed and lower cost of Pure will make it the choice of systematic traders and arbs. Pure hasn’t disclosed any information about their fees other than giving brokers a choice between two fee schedules - I assume ticket and per share.

The launch date is October 12th 2006.