12.13.2011
By Terry Flanagan

Concerns Facing Canadian Markets

Although the U.S. and Canadian markets share many similarities, the issues facing each market can differ.

One of the chief concerns facing the Canadian markets today is the issue surrounding dark, off-exchange trading. Although it is also a topic for discussion in the U.S. markets, it’s at a different stage up north.

“There’s a lot of debate around off-exchange trading, whether it’s dark trading or internalization, that’s been on the minds of regulators and marketplaces and for us as a whole,” Kevin Sampson, vice president of business development and strategy at TMX Group, told Markets Media. “That process has been going on for some time now. We have the luxury of looking at the U.S., who is a few steps ahead as far as off-exchange trading. We are looking at what the benefits are of that and what the pitfalls are with this type of market structure.”

This has led Canadian regulatory authority Investment Industry Regulatory Organization of Canada, or IIROC, to release a set of proposals governing the regulation of dark trading. The rules framework includes provisions for minimum price improvement and size thresholds.

“That’s a result of industry concern in Canada, as far as what the impact is for off-exchange trading on visible markets and price discovery. It’s about striking that balance, providing a framework, recognizing the benefits of trading dark, without having unintended consequences. Canada is in the very early stages compared to the U.S. in dark trading, as there’s only a few venues. We think regulators are going in the right direction.”

Although Canada may be behind the U.S. when it comes to market structure, one thing that the global markets are experiencing together is the extended period of volatility and the effects of the European debt crisis.

“It’s obviously affecting us, we’re not isolated from it,” said Sampson. “We are in a unique position in Canada, with macroeconomic differences. We have very strong fundamentals in Canada as opposed to in the U.S. and in Europe. We have a very strong banking system, and have been very conservative as far as our balance sheets and debt.”

The effect of the global macroeconomic issues has been manifesting itself in the trading volumes in Canada. Despite this, the Canadian market has remained strong and the S&P/TSX index has, for the most part, outperformed many other global indices.

“In relative terms, compared to other jurisdictions it’s been as good as we can expect at this point,” said Sampson.

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