When it comes to trading in the Great North, there are five brokers that handle or routethemajority of executions.
Unlike the US trading markets that have at least a dozen or so large or bulge firms that compete for trading business, Canadas equity marketplace is dominated by an oligopoly of sorts with the countrys few major bank subsidiaries, such Toronto Dominion, Royal Bank of Canada or CIBC, working customers orders. But of the handful of major banks, one stands above the rest, according to a recent Greenwich Associates report.
Standing above the Canadian pack in terms of equities trading was Royal Bank of Canadas subsidiary RBC Capital Markets which garnered 15.4 percent of all trading business, the equity market consultancy wrote in its 2016 Canadian Equity Investors Study. Rounding out the top five were: BMO Capital Markets (11.5%); Scotiabank (10.4%); TD Securities (10.0%) and CIBC (9.3%.)
Within an essentially flat pool of institutional equity commissions into Q1 2016 in Canada, the Big Five Canadian brokers maintained their dominant market share last year by capturing an aggregate 57% of institutional Canadian equity trading volume, wrote report author Jay Bennett.
For the study, Greenwich Associates interviewed 59 institutional portfolio managers and 59 institutional traders about the brokers they use for Canadian equities between December 2015 and February 2016. Study participants were asked to rank order the brokers they use for research/advisory services, trade execution and other services, to estimate the share of their overall commission volume allocated to each firm, and to rate the quality of service they receive from each broker.
RBC also scored tops when it came to research provision and advisory. RBC snagged 16.6% of buy-side business. The remainder of the top five were – Scotiabank (14.3%), BMO Capital Markets (12.4%), CIBC 10.2% and TD Securities (8.6%.)
Current data show that buy-side trading desks allocate about 63% of their Canadian equity trade commission payments to compensate providers of research/advisory services, including analyst service, sales, corporate access, and other services.
In Canada trading is dominated by the big banks and these results are no surprise, said a US trader who trade inter-listed stocks in Canada. I use three of the ones on the list and they provide excellent service given the differences our markets.
Inter-listed stocks are those that are listed and trade in both the US and Canada.
Parsing down the data further, when it came to using an algorithm or trading by other electronic means RBC again showed its prowess, ranking number two with a market penetration level of 65%. However, it was US-based ITG and its 79% penetration level that was tops. ITG also has a Canada-based subsidiary, ITG Canada.
According to Greenwich, electronic trading in Canadian equities does not have the same influence on trading flows that it does in U.S. equities (e-trading accounts for about 15-16% of the overall annual institutional commission pool), but buy-side traders in Canada know that low-touch execution will become an increasingly important driver of trading volumes and commissions.
While high -touch trading remains a pillar of our trading system, everyone knows that low-touch (e-trading) is going to play a more important role in our trading strategies as the need to rein in costs continues, said a head trader in Canada. Also, moving our own institutional partners away from talking to a sales trader on the phone and to getting comfortable with an algorithm is a process – one that everyone has to get more comfortable using.
