Canadian Market Quality Debated

Terry Flanagan

Canadian equity markets have significant issues that discourage participation. Canadian equity markets are sound and overachieve on the global stage.

Those were two divergent opinions presented at the TMX 2012 Canadian Trading Conference held May 17 in Toronto.

In one camp, ITG Canada Managing Director of Research Doug Clark said that some institutional investors such as pension funds have scaled back or stopped trading their core positions because traders and investment managers no longer understand how the markets work.

Clark said short-term stock movements can be explained only about 40% of the time, down sharply from 90% five years ago. “Why do we have the complexity we have?” he asked rhetorically.

Clark indicated that some short-term market participants’ emphasis on speed has compromised the experience of other more traditional traders and investors. “No natural investor” cares about improving trade speed by one or two milliseconds, Clark said; rather, that is the bailiwick of “intermediaries.”

A more sanguine perspective was offered by Thomas Kalafatis, managing director and head of prime services at CIBC World Markets. Kalafatis said Canadian markets are vibrant, and given its population of just 34 million people, Canada “punches above its weight” in terms of providing an efficient and professional trading experience.

Other panelists had mixed views. Rizwan Awan, managing director at BMO Capital Markets, said some clients have backed away from the market because they are “not aware of the complexities.”

Execution transparency was another issue cited by speakers. “The biggest issue is that institutional investors are not confident about where their orders are being executed,” said Elizabeth King, head of regulatory affairs at Getco.

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