Dark trading in Canada is set to recover slightly over the next year, as market participants acclimatise to dark pool rules introduced last year, according to a new TABB report.
The consultancy group has extended its capital market research to Canada, and has this month released its first bi-annual report on dark trading, high frequency trading and block trading trends.
In the report, TABB estimated dark trading, which took a major blow following the introduction of new rules last October, would increase from 3% in 2013 to 4% in 2014.
Despite the slight rise, it's still far from the 7.4% of trading before new regulation required a price improvement for small orders. The rule is now being reviewed, and TABB anticipated further regulatory adjustment.
The report explained it had expanded coverage to the Canadian market, because of industry requests.
"The market structure changes occurring in the Canadian equity markets are being scrutinised closely by other exchanges around the world," Miranda Mizen, TABB's principal and director of equities research, said.
It was difficult to compete in the Canadian market as 83 per cent of the volume trades on a platform owned by the TMX Group, she said.
"Dark trading is 3% and the economics of high-frequency trading have been curtailed."
TMX Group last year acquired rival venue Alpha, resulting in concentration of volume. This led Chi-X Canada to come up with a new, competing alternative trading system, CX2, set to launch in phases from May 3.
The TABB report said there was a need for new avenues of revenue and to attach institutional investors to the Canadian market, and therefore it expects market structure to keep evolving.
"Market participants will force the regulators' hand on currently-unregulated market data fees. Pressure for incremental change to facilitate revenue growth and increase margins will come from within as Canada continues to struggle with the inherent conflicts of concentration and choice," the report said.