12.21.2011
By Terry Flanagan

Canadian Markets on the Rise

With volatility on the decline in the global markets, broker-dealers are seeing increased opportunity.

Broker-dealers, who have been taking it on the chin as the markets saw sustained volatility, are poised to bounce back while normalcy returns.

“The declining volatility makes it a little bit easier to trade, in terms of negotiating prices and working orders,” Tom Steen, head of the Canadian trading desk at Jones Trading, told Markets Media. “Generally, people are more giving and more flexible. In a higher volatility environment, they tend to hold things closer to their vest, and tend to work orders smaller.”

The S&P/TSX 60 VIX, or VIXC, which measures the 30-day implied volatility of the Canadian stock market using S&P/TSX 60 index options, has been on the decline in recent weeks, corresponding with the U.S.’ CBOE Volatility Index, or VIX.

Since peaking in August at about 37, the VIXC of the S&P/TSX 60 has declined to just under 21 as of mid-day Dec. 21. Similarly, the CBOE Volatility Index has been on a wild ride since August, with two and three percent intraday swings occurring on a regular basis. The VIX reached a high of 48 on Aug. 8, as the markets reacted to the lengthy U.S. debt ceiling negotiations and the Standard & Poor’s downgrade of U.S. debt. Most recently, the VIX was trading at about 22.

The U.S. and Canadian markets are also as interconnected as they’ve ever been, with brokers sending orders over the border. The increasing U.S. interest in the Canadian markets was evidenced on the most recent Thanksgiving holiday, when trading volume in Canada was down some 50% while the U.S. markets were closed.

“We are seeing more and more U.S. clients trading in Canada,” said Steen. “They are exploring deeper than they have been in recent years. It’s an ongoing trend. There’s a lot of foreign players in the Canadian market, which brings much more diversity.”

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