06.07.2012
By Terry Flanagan

Canadian Alternative Venues Gain Despite Market Malaise

Alternative trading venues in Canada have seen solid market share gains in recent months despite an overall decline in trading volumes.

Chi-X Canada has been among the largest gainers, with market share increasing from 8.3% to 10.3% since the beginning of the year alone. The venue asserts this is in large part due to solid growth on their part.

“We have been getting new customers on board using our platform as well as getting existing customers to use our platform more,” said Dan Kessous, chief executive of Chi-X Canada.

“We also have a smart order router that clients can use for best execution, which had an uptick in use. We also released new strategies on our router that allows clients to break up orders and look for liquidity on several marketplaces. We have managed to internalize quite a bit of flow when clients use our router.”

It is not only Chi-X Canada which has seen market share growth, newly minted exchange Alpha and Pure Trading have also seen gains, according to data from the Investment Industry Regulatory Organization of Canada.

While lit alternative trading systems have been seeing market share gains, dark pools have also enjoyed similar increases. Dark trading accounted for 5.2% of trading volume in May in Canada, up from 1.5% from the same period a year earlier. The two largest dark pool operators, ITG with Match Now and Alpha with Intraspread, each control about 2.5% of overall market share apiece, with Liquidnet and Instinet’s dark venues splitting up the rest.

Overall trading volume in Canada this year is down some 30% through April, whereas the U.S. has only seen a decline of about 10%. Kessous asserts that this will remain until there are some long term resolutions to the uncertainties in the marketplace.

“Volumes haven’t been great lately; we gained market share but volumes are lower than they were in the past,” said Kessous.

Between the European debt crisis, fears of an economic slowdown in Asia and the uncertainty surrounding the U.S. election, there is a lot weighing on the minds of investors. Further eroding investor confidence was the $2 billion trading loss suffered at JPMorgan as well as the botched initial public offering and subsequent slide of Facebook stock.

“There is sentiment from investors that they been cheated, and they are losing trust in the financial markets, which is the big issue,” said one Canadian trading platform executive. “As soon as the markets pick up again this will be quickly forgotten.”

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