Employees work at the Tradeworx office in Red Bank, New Jersey. It is an emerging player in the secretive and controversial world of high-frequency trading, and it's dead quiet as staffers pore over the "tape," financial industry speak for the record of the day's transactions.MIKE SEGAR
Amidst the hue and cry about high-frequency traders (HFTs), TMX Group, the leading market operator in Canada, is sticking with its long-held preference to welcome them to Canada.
"It is our continued view, particularly my view, that they add liquidity to the marketplace," chief executive officer Tom Kloet said on the company's quarterly conference call Friday. "And that they keep spreads narrower than the market would be without them."
He did not quite say that HFTs posed no threat, noting that there are ongoing regulatory reviews. But his language certainly dialled down the rhetoric that is often levelled at the high speed traders -- specifically that they contribute to volatility and help to stack the deck against retail investors.
Mr. Kloet also noted that HFTs may have less of a market share in Canada than we think. Earlier this year, the Investment Industry Regulatory Organization of Canada put out a study that concluded they may account for as much as 42 per cent of equity trading in Canada. Mr. Kloet didn't discount the research, but added their average share is probably lower than that, in the range of 20 to 30 per cent.
Plus, their volumes have dropped along with the broader market, so it's not as though they are stealing market share from the more established players who are suffering. Total volume across the Toronto Stock Exchange, TSX Venture Exchange and TMX Select dropped 24 per cent in third quarter from the year prior, and Alpha's plummeted 35 per cent.
Now, keep in mind that from a pure business point of view, Mr. Kloet more or less needs to be open to HFTs. They boost trading volumes, and the TSX earns fees for that. But he also wasn't gung ho, and didn't ignore the criticisms.
In other news, Alpha is now being run by Rob Fotheringham, senior vice president of equity trading, after former head Jos Schmitt recently stepped down. And TMX plans on devoting most of its near-term cash flows to paying down debt, but remains open to international acquisitions, if they fit.
Tim Kiladze