BAY STREET-Stock volumes seen rising as trading options grow

* New ATSs, order types set to launch in Canada

* Seen boosting activity, cutting costs for investors

* Some dealers concerned about rise in other costs

By Jennifer Kwan

TORONTO, Oct 24 (BestGrowthStock) – Canadian stock trading volumes
look set to rise in the coming months as the country’s main
stock exchange and its domestic and foreign competitors push to
roll out new dealing platforms and fresh ways to route orders.

The changes, which some warn could inflame tensions over
trading costs, are part of a global trend that has seen
traditional exchanges and new players fight aggressively for
market share.

“There’s the possibility if there’s real innovation out
there you’ll see some more growth,” said Thomas Kalafatis, head
of prime brokerage and securities lending at CIBC World
Markets.

“That’s why the industry looks at volume as one of its key
metrics because it shows that your output … is being
enhanced. There are still plenty of unmatched trades happening.
The challenge of the marketplace is to make the match.”

Canada trades an average of around 1 billion shares a day,
the majority of them on the Toronto Stock Exchange and TSX
Venture Exchange, both of which are owned and operated by TMX
Group Inc (X.TO: ).

But TMX has come under pressure in recent years from Alpha
ATS, an alternative trading system backed by the investment
dealer arms of Canada’s big banks.

TMX’s exchanges accounted for nearly 75 percent of total
stock trading share on a volume basis in September, while Alpha
made up about 17 percent, according to data from the
self-regulatory body the Investment Industry Regulatory
Organization of Canada.

Both players are set to roll out a new batch of trading
options shortly.

TMX Group plans to launch an alternative trading system
called TMX Select. It also plans to allow new “dark” order
types this fall, trades in which market players do not see
details until orders are matched and executed.

Many traders prefer this because they don’t want
information about orders to move prices before trades happen.

Alpha ATS plans to launch new dark-order types for its
IntraSpread facility, which allows investment dealers to match
trades within their own walls to shave trading costs.

Meanwhile, many global players are considering launching
“dark pools” in Canada. These trading venues also let buyers
and sellers avoid revealing information that can signal their
intentions to the rest of the market.

Instinet (8604.T: ), Credit Suisse (CRP.N: ), Goldman Sachs
(GS.N: ) and Morgan Stanley (MS.N: ) (Read more about the money market today. ) are considering launching dark
pools in Canada, according to spokespersons.

Industry experts say these alternatives can cut the cost of
individual trades and refine trading strategies, unlocking
liquidity that wouldn’t otherwise exist.

“If we can find ways as public markets, if it means dark
pools or dark order features, to execute those ideas, then
absolutely you’ve brought new liquidity to the market. New
people that are willing to trade,” said Richard Carleton, vice
president, corporate development at CNSX Markets.

FRAGMENTATION FEARS

While competition brings the potential of higher volumes,
many investment dealers, particularly smaller players, worry
about fracturing the marketplace.

Costs are another issue. Increased competition has largely
driven down the costs of individual trades. But dealers must
upgrade technology to access multiple platforms. The industry
also says some new pricing models are squeezing profit margins
for dealers.

Susan Copland, a director at the Investment Industry
Association of Canada, said the dealer community is also
incensed by the rising costs to access market data and the
industry group has commissioned a study to analyze these.

“What we’re concerned about primarily is the way the
regulation operates when dealers are forced to subscribe to
markets,” she said.
(Editing by Jeffrey Hodgson)

BAY STREET-Stock volumes seen rising as trading options grow