The big five bank-owned investment dealers have suffered a sizable dent their market share of Canadian fixed income trading, according to new research from Greenwich Associates.

The research firm reports that the big five now collectively represent just 50.8% of fixed income trading, down from 67.7% in 2011. Greenwich says that the big drop is significant but “could reflect evolving business strategies of the larger bond dealers.”

“Some banks may feel that competition and the increase in electronic trading have eroded the margins in the business to the extent that they need to adjust their client priorities,” it suggests.

RBC Capital Markets continued to lead the industry league tables with a share of just under 15%, followed by TD Securities and BMO Capital Markets at just under 10%, Scotia Capital and CIBC World Markets round out the top five. In terms of Greenwich’s quality rankings, RBC rates first in terms of sales and trading quality, with BMO tops in research quality.

Foreign banks, led by Bank of America Merrill Lynch, now hold an estimated 31% share of Canadian debt trading, Greenwich reports, while three smaller local institutions (Desjardins Securities National Bank of Canada, and Laurentian Bank Securities) now have approximately a 16% share.

Overall trading volumes in Canadian fixed-income rates instruments including government, provincial and mortgage bonds rose sharply in 2012, the firm says, driven by economic, market and regulatory factors. “Canada continues to offer domestic investors a high-quality surrogate for the U.S. market,” explains Greenwich Associates consultant, Peter Kane. “The financial infrastructure is strong, the federal government credit rating is triple A and sovereign debt still offers a yield pickup over U.S. Treasury bonds.”

Greenwich says that this overall market growth has, in turn, encouraged smaller players to further invest in the sector, accelerating the role of electronic trading. The latest Greenwich Associates data shows that electronic trading increased to 22% of total fixed-income rates trading volume, up from 18% in 2011.

“Several factors contributed to the e-trading boom including investors becoming more comfortable with electronic fixed-income execution and the benefits of transparency, speed and trade processing. Another driver: the desire of banks outside the big five to more effectively access the broad institutional network,” it says.