As commissions flatten, Canadian brokers seek to maximize profits.

With brokers eyeing a diminishing stream of commission revenue, they are looking to maximize trading profits through pinpoint placement of orders within an increasingly fragmented marketplace.

This is certainly the case in Canada, which has seen an upswing in the number of execution venues, which are competing against each other by offering rebates for liquidity providers.

“The landscape in Canada is not unlike the rest of the world,” Ritesh Patel, director of client services at Fidessa Canada, told Markets Media. “Sell side broker-dealers, who form the majority of our client base in Canada, are scrutinizing costs.”
Algorithmic trading strategies, which involve splitting up large orders into smaller ones, are taking root in Canada as trading venues proliferate.

“We’ve made a number of changes to help clients take advantage of the rebate wars via smart order routing,” Patel said. “Through SOR, clients can fulfill their best execution obligations while at the same time take advantage of the various rebates for posting orders.”

The advent of multiple markets in the form of ATSs and dark pools has created a spike in demand for direct market access (DMA), low-latency connectivity, and consolidated market data.

“The multimarket environment is still relatively new in Canada,” said Patel. “Since Pure launched in 2008, we now have six lit venues plus fourdark pools, whereas previously the TMX was the only game in town.”

The Canadian Securities Administrators (CSA) and Investment Industry Regulatory Associations of Canada (IIROC) have jointly issued proposals for pre-trade transparency, including a minimum size threshold, price improvement for orders executed on a dark pool against orders on a displayed market, and priority of execution for visible orders over dark orders at the same price on the same marketplace.

A concern is that the proposed regulations would provide a business advantage to lit venues for dark liquidity (i.e. dark orders) that compete against dark pools that are not protected markets.

“There is an ongoing debate over dark pools versus lit venues, including access and liquidity,” said Patel. “Regulators are still trying to get their hands around the impact of crossing networks, for example, where brokers match orders against their own inventory.”

As U.S. and Canada-based high-frequency trading firms turn their attention to the Canadian markets, Fidessa is building out linkages to provide ultra low-latency access to market data and execution.

It’s hosting its Canadian trading platform in Equinix’s Toronto data center, located at 151 Front St., and at TMX Group’s co-location facility, obtaining the benefits of direct high-speed access to Toronto Stock Exchange, TSX Venture Exchange and Montreal Exchange trading engines and market data feeds.

Fidessa is also expanding its customer base by offering front-to-back automation. It’s taken on 30 new broker-dealer customers in Canada within the past three years.

“Fidessa is providing a centralized platform for managing all trading and post-trade functions,” said Patel. “This replaces what for most firms has been a paper-intensive, manual process involving separate platforms for execution, back office, and commission management.”