TSX to undertake $20 million hardware upgrade; Canadian brokers losing out to US in algorithmic arms

TSX to undertake $20 million hardware upgrade; Canadian brokers losing out to US in algorithmic arms

The Toronto Stock Exchange (TSX) group has signed a $20 million contract to replace core trading engine hardware with Integrity NonStop servers from HP.

The expenditure will occur over three years, replacing exisiting leases. The project is expected to go live in the summer.

The move, announced by incoming CIO Brenda Hoffman, is the latest phase of the TSXPress initiative launched in 2005, which is a series of system upgrades designed to ramp up execution speeds for algorithmic trading.

Says Hoffman: "Our current system will become more efficient as we expect to be able to increase order throughput and at the same time decrease order response times."

The exchange is also working on a new trading platform based on blade technology. Phased transition to the new platform is expected to begin in the fourth quarter.

Research released today by capital markets analyst firm Forefactor indicates that more than one-third of total trades originating in Canada are now executed algorithmically. However, most of the soils are going to US-based players, say institutional investors. No Canadian bank-owned broker-dealers are in the top tier.

Investment Technology Group, a New York based agency brokerage and technology firm, currently leads the pack followed by Credit Suisse First Boston and Morgan Stanley.

"The Canadian broker-dealers have the advantage of knowing this market. Whether they partner with a US firm or offer a proprietary suite of algorithms directly, they need to pick up the pace." says Renee Colyer, president of Forefactor. "In reviewing algorithm software, the buy-side indicated that US dealers outflank Canadian dealers in terms of both the level of product sophistication and support."

There appears to be a trend toward partnership arrangements, says Colyer, the TD Securities/Goldman Sachs agreement and CIBC/Bank of America white-label offering being examples of two such deals.

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