Alternative trading systems (ATSs) will gain around a 40% market share of Canadian equities trading by 2012, estimates research and advisory firm Aite Group in a new report.
According to the report, ‘Market Fragmentation in Canada: The End of a Monopoly?’, Canadian ATSs, which include Pure Trading, Alpha Trading and Chi-X Canada, had already succeeded in taking a 10% market share from the Toronto Stock Exchange (TSX) by March this year, up from around 2% in the same month in 2008.
TSX is operated by TMX Group, formed in 2008 from the merger of TSX, the TSX Venture Exchange and the Montreal Exchange.
“When comparing overall trade volume from 2008 to 2009, it is amazing what ATSs have achieved in just a year,” reads the report. “These percentages may not sound astounding overall when compared to the US and Europe, but there is great significance, especially for the ATSs, as it shows that the grip once tightly held by the TMX is beginning to loosen rather quickly.”
Growth in ATS use is being driven by the growth of the global economy and ‘borderless’ trading, the advancement of trading technologies and increasing sophistication strategies and the introduction of ATS-friendly regulation in 2001, according to Aite. Other drivers include equities traders’ desire for more competition, lower execution costs, greater anonymity and less market impact when trading.
“Advancing trading technologies coupled with more complex trading strategies emphasise the need for high-frequency, low-latency platforms with little to no market impact,” the report said. “This will help seed further growth of Canadian ATSs.”
Of the six active ATSs in the Canadian market, Alpha Trading, which has only been operational since November 2008, has garnered the biggest market share. It accounts for almost 40% of the ATS’ combined traded volume in January-February 2009, according to Aite. Pure Trading is in second place with 34% of the total, and Chi-X Canada in third place with 15%.
Aite said this could be attributed to the fact that Alpha’s owners consist of the top financial institutions in the Canadian market. However, it also points out that more than 70% of the volume on Alpha is crossing volume, compared with less than 20% for Pure Trading and slightly just over 20% for TSX. “It appears financial institutions print their trades at Alpha more so than actually executing trades on the platform,” the report reads.