Trade execution under scrutiny

By Philip Porado | June 26, 2012 | Last updated on June 26, 2012
1 min read

Regulators are looking at rules for best execution, say presenters at the Canadian Equity Market conference, presented by Ontario Securities Commission and IIROC in Toronto today.

In previous decades, noted Tracey Stern, OSC’s manager, market regulations, best execution simply meant obtaining the best price.

Today, though, the existence of multiple trading venues and alternative trading systems makes best execution and order protection more difficult.

Read: IIROC has its eye on active trading

In looking at market activity, she says, regulators will look at larger pools of data because “patterns identify non-compliance, not single trades.”

Quoting structure and ownership of market data also will be reviewed in light of users’ comments that data fees in Canada are higher than other markets worldwide.

Read: IIROC watching for market manipulation

Those fees strain relationships between liquidity providers, who receive rebates for brining orders to an exchange, and buyers, who must pay for data to see order depth.

Panelists, meanwhile, note that dark pools and other alternative trading venues are seeing lots of liquidity coming in, particularly from high-frequency traders, despite lack of rebates.

Further, these costs and barriers to entry disproportionately impact smaller dealers. That’s bad, said one, because small dealers play a significant role in raising capital for new ventures.

Others disagreed, though, countering there are plenty of opportunities at the small and mid-cap levels. Costs aren’t as high as the complainers suggest, he said, and the dealers who can’t make it may simply be succumbing to natural selection.

Philip Porado