HIGH-FREQUENCY TRADING DECLINES IN CANADA
- By Justin Grant
Venues that were known for being dominated by high-frequency trading have seen a significant drop-off in the number of orders they handle, according to a report by agency broker Investment Technology Group Inc.
High-frequency trading appears to be on the decline in Canada, with the number rapid-fire orders falling sharply in the fourth-quarter, according to research conducted by agency broker Investment Technology Group Inc.
In a review of the Canadian marketplace's quarterly performance, ITG said overall trade and order activity fell across the board at each of the nation's exchanges, a result that was fueled in part by the decline in HFT. Continued uncertainty over how the Eurozone debt crisis will be resolved, along with persistent questions about the health of the global economy also contributed to average trading volume falling 6 percent during the quarter, the report said.
Nevertheless, a number of factors indicated that HFTs, who have been demonized globally for their role in the so-called flash crash, were less active in Canada during the quarter. ITG said a lower message-to-trade ratio indicates HFTs fired off fewer trades during the period.
Meanwhile venues that were historically known for being dominated by HFTs have seen a significant drop-off in orders being fired off in fractions of a second, including Pure Trading and Omega ATS, which saw respective declines of 25 percent and 34 percent.
"The reduction came largely in ETFs and their underlying constituents, a good indication that some strategies were shut down over the quarter," the report said.
The percentage of under one-second orders on the Toronto Stock Exchange fell 5.5 percent during the quarter, while Alpha and Chi-X saw respective declines of 7.8 percent and 4.3 percent, ITG said. On the other hand, orders that took longer than a minute grew by 10.6 percent on the TSX and rose 9.1 percent and 7.2 percent, respectively, on Alpha and Chi-X.
ITG noted that it measured HFT in this study by the percentage of fleeting orders across each of Canada's lit markets. The firm said it found that the percentage of sub-second orders fell sharply, while long-lived orders increased.
"In particular, orders in the 5 millisecond-to-10 millisecond and 100ms-to-1sec brackets fell the most, dropping 13 percent and 22 percent over the quarter," the report said. "The decline in the distribution of fleeting orders, coupled with the higher representation of long lived orders confirms lower activity by HFT market participants."
But even with HFT falling off, ITG suggested that buy-side market participants could exploit a less cluttered marketplace.
"Short-lived orders contribute to noise and cloud the true liquidity available in the order book," the report said.
