Electronic trading platforms captured almost a third (32%) of overall Canadian equity trading volume in 2023, with this share expected to rise in the next three years, a new report by Coalition Greenwich has found.
According to the report’s findings, this growing demand for electronic execution is driven partly by institutions’ search for natural block liquidity in small- and mid-cap stocks.
These stats echo another recent report which found that 37% of total 2023 equity trading volumes in the US were executed through algorithms and/or smart order routers, with this figure expected to reach 40% in the next three years.
Read more: E-trading platforms experienced increased share of US equity trading volume in 2023
Asset managers and brokers have been driven to automate their trading workflows and accomplish more with less to cope with reduced commission rates, budget restrictions and smaller teams. As a result, electronic and/or algorithmic trading has seen usage increase.
Algorithmic strategies and buy-side to buy-side crossing networks have experienced steady growth, rising from 28% of volumes in 2021 to 32% in 2023.
High-touch trading saw a brief uptick to 61% in 2021 and 2022 – which was attributed to increased volatility and work from home environments – however, this has started to decline, levelling off at 58% in 2023.
Coalition Greenwich found that Canadian managers expect electronic trading figures to surge to 38% in the next three years, while high touch volumes are expected to decline to 54% in the same period.
The report found that the highest commission-paying managers already trade an estimated 35% of their Canadian equities flow via electronic routes and expect this to reach 41% in three years.
“The Canadian equity market is undergoing a transformation marked by an embrace of electronic trading with an onus on sourcing liquidity in difficult-to-trade small and mid-cap names,” said Jesse Forster, senior analyst at Coalition Greenwich Market Structure & Technology and author of the report.
“As electronic trading matures in Canada, other factors are gaining prominence. We are already seeing an increased emphasis on more specific factors like quality of electronic sales trader coverage, algorithmic consultancy and the ability to customise algorithms.”