Canada Poised for Growth

Terry Flanagan

Canada’s financial markets remained relatively stable during 2011, setting the stage for growth in the coming year.

“Canada arguably has the best-developed market structure in the world, based on transparency, automated real-time regulatory oversight, and fair access to the marketplace,” said Heather Killian, executive director of electronic trading and product development at CIBC.

Canadian liquidity, as evidenced by annually increasing equities trading volume, has been on the rise over the past several years, despite market uncertainty, according to research conducted by CIBC. The junior market volumes have also seen substantial gains, nearly doubling over the prior two years. The equities markets continue to see fragmentation as there are at least seven lit venues, comprised of the incumbent Toronto Stock Exchange as well as several alternative trading venues, serving investors.

Although the volatility seen in the global markets has also had an effect on Canada, it has been less drastic. Part of that has to do with the fact that the Canadian economy is largely backed by natural resources such as oil, gold and other mining activities. Canada’s financial sector also wasn’t inflated to the point where widespread bailouts were required to save them once things came crashing down. For the most part, Canadian indices have been among the best if not the best performing in the world. The Canadian dollar has also been very strong.

Regulation is also set to take a hold of dark trading in Canada. Although trading on dark pools only accounts for about 4% to 5% of overall trading volume in Canada, the local regulators have gone ahead and proposed a framework for the practice. Among the proposals are a minimum size threshold for orders placed in dark pools, a specific minimum price improvement, and the prioritization of lit orders over dark at the same price.

“Although the evolution of our regulatory framework is ongoing, we believe Canada is well positioned to manage the innovation being introduced to the markets,” said Killian.

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