Results of In-Depth Interviews with Traders at 30 Investment Management Firms That Manage C$1 Trillion in Aggregate Assets
Toronto, Canada, August 16, 2005 â According to a new report issued today by Toronto-based consulting firm eClientscope Inc., "Buy-side Electronic Trading and Best Execution in Canada", technology has taken the Canadian investment industry by storm in the last two years. Buy-side adoption of advanced order management systems has increased by 240% since 2003. Six out of 10 money managers are now using an advanced order management system and 87% of the buy-side equity trading desks are connected to electronic trading systems. As a result, major changes are forecast in the way the Canadian equity market operates. The role and skill sets of the buy-side traders are also poised for changes.
The study is sponsored by Bloomberg Tradebook Canada Company, Plexus Group Inc. and TSX Datalinx. The report summarizes interviews with head and senior traders at 30 buy-side firms across Canada. These firms manage more than C$1 trillion in aggregate assets and represent several manager segments.
eClientscope projects that 2006 will be a turning point for the Canadian institutional equity market. Today the telephone is still used for two-thirds of Canadaâs equity order flow. Less than 1 in 5 buy-side trading desks now use electronic trading systems for 20% or more of their equity trading. As more money managers order management plans are put in place, the telephone will be replaced by electronic order routing as the dominant method of trade communications. Buy-side traders also plan to direct one-fifth of their equity business to electronic trading systems in 2006.
"The structure of the Canadian buy-side equity desk points to the need for technology," says Jackie Chung, eClientscope principal and author of the report. "With just a few equity traders managing numerous broker relationships, many buy-side trading desks have turned to technology to assist them to do more for less, and to minimize costly manual errors."
"As the trading landscape transforms, buy-side traders are looking for new ways to add more value and thrive in the change. Meanwhile, regulators are stepping up pressure on the money managers to prove that they have achieved the best price and best execution for the clients. As a result, nearly 90% of the buy-side equity trading desks plan to use transaction cost analysis tools to assist them to measure and create value in 2006," adds Chung.
Marie Konstance, Director of Sales and Product Management, Plexus Group Inc, a firm specializing in transaction cost analysis comments, "The competitive environment drives traders to utilize technology to trade strategically. Traders realize that any reduction in trading cost can add to bottom line investment performance. Transaction cost analysis can give traders vital feedback on how to employ the trading methodologies at their disposal in the most effective manner."
As the world of electronic trading unfolds, technology will free up traders from manual tasks and place a premium on analytical skill sets. The future buy-side traders at Canadaâs equity desks will be adding value beyond trade execution and be more involved in the investment process.
The report also covers the Canadian buy-side trading desksâ usage trends and volumes for direct market access, algorithmic trading and FIX trading language, as well as practices and plans for best execution, soft dollar and broker relationships. Buy-side tradersâ views on how they can add more value and how their role will evolve are also discussed.