Canadian institutional investors pulled back on electronic stock trading during last year's market meltdown, but are expected to ramp up cheaper, computer-driven equity trading over the next three years.
Against a backdrop of continued downward pressure on trading commissions, consulting firm Greenwich Associates said yesterday that domestic money managers shifted their buying and selling of stocks away from electronic systems, and back to human beings, during the final few months of 2008 and the first months of 2009.
About 20 per cent of Canadian stock-trading volume was executed via electronic systems in 2007-2008, and 69 per cent was done through high-touch trades - those done by trading desks, according to Greenwich. In 2008-2009, electronic trading dropped to 17 per cent.
"One reason for the shift back to high-touch execution: the breakdown in many algorithmic trading strategies during the crisis," Greenwich said.
"However, with volatility falling back to historic norms and many algorithms being updated to incorporate new data patterns, Canadian institutions seem poised to make a more aggressive move into electronic trading," the consulting firm said.
Institutions expect to be executing 22 per cent of their total domestic equity trading volume via electronic systems by 2012, said the consulting firm, while chopping traditional, high-touch execution to less than 60 per cent of their orders.
U.S. institutions direct 36 per cent of their stock trading to electronic networks, according to Greenwich.
When it comes to the cost of trading, the "all-in" blended commission rate that institutions pay dealers for Canadian stocks on trades fell to an average 2.7 cents per share in 2009, from 3.4 cents in 2008.
Commissions fell for both the high-touch trades facilitated by trading desks, and the electronic orders processed by machines.
Greenwich said the average commission on high-touch trades dropped to 3.7 cents per share in 2009 from 3.9 cents in 2008.
The cost of an institution's self-directed electronic trade fell to 1.4 cents per share from 1.9 cents.
DELISTING NORTEL
This may be a blinding statement of the obvious, but Nortel Networks NT-T shares are now officially worthless.
The former tech icon has formally applied to have its shares delisted from the Toronto Stock Exchange. Recall that not too long ago, there was endless hand-wringing about NT's enormous weighting within the TSX benchmark index.
"Nortel does not expect that the company's common shareholders or the NNL preferred shareholders will receive any value from the creditor protection proceedings," the company said in a press release.
This formalizes what most Nortel followers concluded back in January: the trip through creditor protection would leave nothing for equity holders. Anyone taking a contrarian view by owning the stock will have the dubious distinction of being the last investor to lose money on Nortel.
Nortel shares closed Friday at 19 cents. The company asked for its shares to be delisted before the opening of trading yesterday. The announcement comes as part of the board of director's decision to liquidate the company. All of Nortel's business units will be sold to pay back creditors.
At their peak, in August, 2000, Nortel shares hit $124.5, or $1,245 a share after factoring in the company's 10:1 stock consolidation.
Equity investors typically get nothing from these large restructurings, something to keep in mind as CanWest Global Communications attempts to recapitalize, and General Motors winds its way through creditor protection.
There may be activity in a stock after a creditor filing, but part of the buying will simply reflect short sellers covering positions. Investing in the equity of a company in creditor protection is fraught with peril.
ON THE MOVE
National Bank Financial beefed up its derivatives team last week by hiring from a leading hedge fund.
Shaloub Razak joined NBF as a director of the global equity derivatives team after a stint at Fortress Investment Group in New York. This move was first reported on the Bill's Buzz blog run by executive search from Vlaad and Co.
Fortress is a leading player in the hedge fund world; it went public with much fanfare in 2007 at $18.50, and briefly doubled in price. The stock has since sold off, in step with a slump in most publicly traded hedge funds, as markets melted. Shares now change hands for $3.88.
© The Globe and Mail
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