A tote board displays the closing figure for the TSX for the year in Toronto, Monday, Dec.31, 2012. Veritas Investment Research Corp. is one of the few research-only firms in the country, and lives or dies by selling research to paying clients. There is no need for its analysts to toady to companies for investment banking reasons, because Veritas has no underwriting department.Frank Gunn/The Canadian Press
Just when you think trading volumes on the Toronto Stock Exchange can't fall any further, they do.
Average daily volume on the TSX in May was 326.7-million shares, according to reports from parent company TMX Group Inc. So far in June, average daily volume has slumped to 302-million, an analysis of TMX's daily reports shows. That's a drop of 7.6 per cent.
Some of that is just the onset of summer, and some is likely part of a steady worldwide decline in trading volumes. But the TSX's decline outpaces those of other major North American exchanges. So far in June, New York Stock Exchange volumes are down 3.2 per cent from May and Nasdaq volumes per day are down 5.3 per cent, according to Bloomberg numbers.
It could not come at a tougher time for Canadian brokerages, which are already struggling to make money in a quiet environment.
Polling traders, analysts and exchange executives, there is no clear consensus on why this is happening in Toronto. But there are basically two main theories. In all likelihood, it's a combination of all the factors.
One theory is that of the vanishing high-frequency traders. In recent days, a rule that pushes high frequency traders to trade through exchange members rather than directly on Canadian markets went into full force. Couple that with the forthcoming end of a TMX program offering some preferred trading pricing to HFTs and that may have shaved some volume from HFT activity. But it's not clear at all that HFTs have slowed their activity any more than anyone else.
The second theory is the "we don't have anything anybody wants" theory. That basically says that first we saw trading volumes vanish in metals and energy stocks that went out of favour, and which had accounted for a good deal of trading on the resource-heavy TSX. Then bond yields started to rise in recent weeks, pushing up interest rates and hitting income stocks. And what was keeping Canadian traders busy with no resource stocks to trade? Real estate investment trusts, dividend stocks and other income plays that had increasingly become the other large sector in Canadian markets. With waning interest in income, and resources, there's not much left on the TSX.
Whatever it is, June is on track for an epic slowdown. At this pace, TSX volumes are headed for their quietest month in a very long time, and a 9 per cent decline from June 2012's 332-million shares a day. Some of the other TMX businesses, however, are hopping. Volume on the Montreal Exchange, home to derivatives trading, was soaring in May. As bond markets moved fast, the MX set a record in trading on the future for the 10-year bond, helping the market set an overall volume record in the month.
(Boyd Erman is a Globe and Mail Reporter & Streetwise Columnist.)
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