Commission rates paid by Canadian institutions to brokers on domestic equity trades declined sharply from 2008 to 2009, according to new research from Greenwich Associates.

The “all-in” blended commission rate paid by institutions on trades of Canadian equities fell to an average 2.7¢ per share in 2009, from 3.4¢ in 2008, Greenwich reports. The average rates on both “high touch” trades facilitated by brokerage traders and electronic trades also declined. The average rate on high-touch trades dropped to 3.7¢ per share in 2009 from 3.9¢ in 2008, and the average rate on self-directed electronic trades fell to 1.4¢ per share from 1.9¢, Greenwich says.

By comparison, in the U.S., the average commission rate on “high touch” trades was unchanged from 2008 to 2009 at 4¢ per share, Greenwich says. Moreover, it noted that institutions in the U.S. only managed to reduce their “all-in” blended commission rate last year by shifting a substantial portion of their overall equity trading business to electronic platforms, which now capture 36% of domestic equity trading volumes.

Canadian institutions however, are moving away from electronic trading, Greenwich finds. Approximately 20% of Canadian equity trading volume was executed via electronic systems in 2007-2008 and 69% was done through high-touch trades. In 2008-2009 electronic trading dropped to 17% while high touch trading grew to 74%, Greenwich says.

“One reason for the shift back to high touch execution: the breakdown in many algorithmic trading strategies during the crisis,” it says. “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.” It reported that institutions expect to be executing 22% of their total Canadian equity trading volume via electronic systems by 2012, at which point they expect to have reduced high-touch execution to less than 60% of their trading business.

IE