Architect of CIBC’s electronic trading strategy leaves bank

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One of the architects of CIBC World Markets' wildly successful electronic trading strategy is leaving the bank.

Tom Kalafatis announced this week he is stepping away, leaving behind an equity trading business that now ranks first in market share on Bay Street.

Until 2009, CIBC lagged behind the likes of Toronto-Dominion Bank, which had long dominated stock trading after acquiring Newcrest. After instituing some change that year, CIBC captured 21 per cent of Canadian equity trading by value in 2010, and today its market share is above 25 per cent – making it number one by a wide margin.

The rapid growth stems from the investment bank's embrace of electronic trading – and notably, high frequency trading. The project, shepherded by former capital markets head Richard Nesbitt and included former cash equities head Rik Parkhill as well as Mr. Kalafatis – all of whom worked together at the Toronto Stock Exchange – saw CIBC open its arms to new ultra fast rivals emerging in the United States at a time when many other Canadian banks either ignored the threat they posed, or dismissed it

On Bay Street CIBC is well known for offering 'direct market access,' which lets the likes of U.S. HFTs plug into CIBC technology to swap stocks while still using their own electronic programs. Many rival banks thought the strategy was fraught with risk, because HFTs deployed some aggressive strategies south of the border, and they also didn't like that the trading game was changing.

CIBC took a different approach. "We don't care how you trade … as long as you trade through us," Mr. Parkhill told the Globe while chuckling in 2011.

While CIBC still dominates in equity trading, the business is evolving, particularly for HFTs. The bank had a first-mover advantage, but there are more competitors now, and as the business evovled its margins have eroded, making it harder to keep investing in revolutionary technology.

Mr. Kalafatis has not yet declared what he will do next. Within CIBC, Bob Cancelli is taking over his spot on an interim basis, running what is known within the bank as the prime services group.