Electronic trading platforms captured nearly a third (32%) of overall Canadian equity trading volume in 2023, up from 26% in 2022, and Canadian asset managers expect that share to surge to 38% in the next three years.

The growing demand for electronic execution is being driven in part by institutions’ search for natural block liquidity in small- and mid-cap stocks.

“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,” says Jesse Forster, Senior Analyst at Coalition Greenwich Market Structure & Technology and author of Northern Lights: Illuminating Trends in Canadian Equities.

Shrinking Commission Spend, Shorter Broker Lists
Rising volumes are making electronic platforms an increasingly important offering for brokers at a time of increasing competition for equity trading commissions. The total amount of institutional commission spending on broker execution and research/advisory services declined to an estimated annualized figure of $450 million, down 7.2% from last year.

Meanwhile, there has been a discernible reduction in the number of execution brokers employed by Canadian buy-side managers, averaging 20.6, down from just under 22 in the previous three years. For the typical Canadian institution, the top broker receives approximately 19% of the flow, the second about 15%, with the top five collectively capturing over 60% of the buy-side’s order flow. That’s roughly a stable level of concentration since 2021.

Across the market, total commission spend is split about evenly between sales and research.

Brokers competing for growing electronic trading volumes in Canada should prioritize their platforms’ ease of use, reliability and high-quality support—traits prized by buy-side traders across most global markets covered by Coalition Greenwich research.

“As electronic trading matures in Canada, other factors are gaining prominence,” says Jesse Forster. “We are already seeing an increased emphasis on more specific factors like quality of electronic sales trader coverage, algorithmic consultancy and the ability to customize algorithms.”

Source: Coalition Greenwich