A new report from Coalition Greenwich has found that electronic trading platforms captured nearly a third of overall Canadian equity trading volume in 2023, up from 26% the previous year…and with that share expected to increase to 38% by 2026.
The growing demand for electronic execution is being driven in part by institutions’ search for natural block liquidity in small- and mid-cap stocks, said report author Jesse Forster: while shrinking commissions and shorter broker lists are also a contributing factor.
“The Canadian equity market is undergoing a transformation marked by an embrace of electronic trading with an onus on sourcing liquidity in difficult-to-trade small and mid-cap names,” said senior analyst Forster.
Rising volumes are making electronic platforms an increasingly important offering for brokers at a time of increasing competition for equity trading commissions. The total amount of institutional commission spending on broker execution and research/advisory services declined to an estimated annualised figure of US$450m in 2023, down 7.2% in 2022.
A key trend has been the notable reduction in the number of execution brokers employed by Canadian buy-side managers, now averaging 20.6, compared to just under 22 in the previous three years. For the typical Canadian institution, the top broker receives approximately 19% of the flow, the second about 15%, with the top five collectively capturing over 60% of the buy-side’s order flow. That’s roughly a stable level of concentration since 2021.
Across the market, total commission spend is split about evenly between sales and research, found the report, which suggested that brokers competing for growing electronic trading volumes in Canada should prioritize their platforms’ ease of use, reliability and high-quality support.
“As electronic trading matures in Canada, other factors are gaining prominence,” said Forster. “We are already seeing an increased emphasis on more specific factors like quality of electronic sales trader coverage, algorithmic consultancy and the ability to customize algorithms.”
©Markets Media Europe 2023
