(B) Algorithms and Smart Order Routing
Smart order routing is still relatively new in Canada; however alternative trading systems and exchanges are now becoming part of the trading landscape. While the technology solutions are there, effectively deploying them in Canada requires further development. Presentations at the conference will focus on methods to source liquidity at the primary exchange and via the five alternative trading venues.
What the industry is saying:
“Significant progress has been made in multiple market connectivity and smart order routing capabilities during the past six months, but there is still a lot of distance to make up compared with other jurisdictions. Participants need to have greater flexibility and control when it comes to order routing.” Matt Trudeau, Chi-X Canada
“The inability of secondary trading venues to accommodate volumes and provide liquidity during primary market disruptions, raised questions as to secondary providers having sufficient connectivity to all market participants and the lack of price discovery transparency.” Tom Brown, RBC Asset Management
“Algorithmic trading technology really proved itself during a primary market outage. Clients were able to execute their strategies on Canadian inter-listed stocks seamlessly. Orders were posted in the United States, and if better prices were available in Canada, the algos grabbed them. However, few clients were willing to post bids and offers in alternative markets when no one else was.” Lou Mouaket and Graham Mackenzie, CIBC World Markets
“Electronic Trading, like traditional trading, is at the mercy of the exchanges being able to post bid and offers and execute orders on a timely basis. Once that connection is disrupted, the ability to order route to other markets through a “Best Market Router” becomes more important. Within a multiple market environment, the ability to execute client orders on other markets has become a must for dealers and clients.” John Christofilos, Canaccord Capital
(C) Regulatory Initiatives
An indication of the regulatory climate is the proposal by European leaders for sweeping new market regulations to be discussed at the April 2, 2009 summit of the Group of 20. These include sanctions on tax havens, caps on bonus payments, and regulation of hedge funds and rating agencies.
While sweeping global regulatory issues are being debated, it is equally important that regulatory processes, designed to increase the efficiency of capital markets processes in Canada, continue. These include initiatives to enhance marketplace operations by the Canadian Securities Administrators and the Investment Industry Regulatory Organization of Canada (IIROC) which has a role similar to FINRA in the US.
Now that multiple marketplaces exist in Canada, more clarity must be established around what constitutes best execution and trade through protection. Key to this is the availability of an information processor for both corporate debt and equity securities. Deliberations have been underway since 2006, and in January 2009, the regulators issued a request for potential information processors to amend their previous submissions. The plan is to review these updated submissions in the first half of 2009.
What the industry is saying:
“During primary market disruptions, Canadian dealers’ inability to port their passive liquidity from the primary market to the alternative marketplaces has highlighted the importance of primary market supply and demand in the price discovery process. Without a National Best Bid and Offer (NBBO) representing a majority of outstanding orders, traders are left without a compass, and automated systems such as smart routers and crossing networks were unable to operate effectively.” Wendy Rudd, TriAct
“One of the challenges resulting from market fragmentation has been the difficulty of data consolidation. Consolidated quotes, live consolidated trade tapes, and post-trade consolidated feeds are all essential for trade transparency, regulatory compliance, and relevant trade analytics. Today there is no market standard or consolidated provider. Some market participants consider this lack of consolidation a regulatory failure while others wait for the largest market players to pressure vendors for a consolidated tape.” Alison Crosthwait, ITG, in her paper, ‘Is Chaos Good?’
(D) Risk Mitigation and Operational Efficiency
Risk mitigation and operational efficiency definitely deserve increased attention in 2009, and June’s conference will provide attendees with the latest thinking on these important areas.
There is a growing belief that market participants must be thoroughly versed in the automated electronic tools required for intelligent market connectivity, achieving best execution, managing risk and achieving cost reductions. This is being driven by the increasing complexity of the Canadian market and the need to control risk and reduce costs in these turbulent times.
What the industry is saying:
“In the current market environment, capital scarcity has resulted in a significantly decreased appetite to facilitate client block and basket trading on a liability basis. Forced to work orders into the market, traders have turned to algorithmic trading to manage the risks associated with transacting medium to significant sized orders. With the reduction of capital and ensuing smaller percentage of block trading, cash traders are finding themselves utilizing the electronic suite of tools that were previously only relegated to program trading desks.” Lou Mouaket and Graham Mackenzie, CIBC World Markets
Finding solutions – Now in its 5th year, the FPL conference in Canada tackles the tough issues
