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IIAC president Ian Russell is seen in this file photo.

Fred Lum/The Globe and Mail

As small dealer firms close their doors or find a partner to stay afloat, their investments in trading technology will be difficult to replicate for new entrants should equity markets rebound, an industry association says.

Ian Russell, the head of the Investment Industry Association of Canada, is calling on securities industry regulators to make changes that will reduce the stress for smaller players who face a difficult operating environment of weak resource markets and fewer new listings without the benefits of scale. Mr. Russell says these brokerages will be difficult to replace because of several barriers to entry that have fallen into place in the past few years.

With the shuttering or merging of firms such as Fraser McKenzie, Versant Partners and tomorrow's shutdown of Stifel Nicolaus there is less choice and competition for the markets, Mr. Russell wrote in a letter to IIAC members on Thursday.

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"If small dealers such as these continue to fall away, Canadian capital markets will suffer serious consequences, both in terms of reduced competitive stimulus in retail and institutional markets, and less financing opportunities for small Canadian businesses," Mr. Russell said.

He points to institutional boutiques' investments in technology that interconnects trading, as well as systems that support buy-side demand for algorithmic trading, as investments that will be complicated and expensive for new brokerages to recreate should capital markets recover enough to attract start-ups. Wealth management and retail firms have also had to make changes to adapt to regulatory changes and investor demographics, he said.

The IIAC says more licensed dealers resigned in the second quarter of 2013 than in any other quarter since the beginning of 2009.

To stem the flow of dealers from the industry, Mr. Russell suggests a number of changes regulators could make. Among them, he wants some fees reduced and thinks slowing down the flow of new rules for the industry would allow smaller players to gather necessary resources or new technology.

"It is not simply a case of business 'Darwinism,' with firms folding in difficult times and new firms quickly emerging when times get better. That will not happen," he said.

(Jacqueline Nelson is a Globe and Mail Financial Services Reporter.)

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