25 Years of CSTA: A Look at Canada’s Trading Transformation 

This year marks the 25th anniversary of the Canadian Security Traders Association (CSTA), a milestone not just for the organization, but for the entire sell-side trading community. With the annual conference fast approaching, we are reflecting on the evolution of Canadian equity markets over the past 25 years.  

When regulatory changes transformed Canadian equity markets into a fragmented ecosystem, Canada rose to the occasion by creating one of the most competitive, innovative, and technology-driven trading environments in the world. 

Regulation, Fragmentation, and ATSs 

At the turn of the century, the Toronto Stock Exchange (TSX) was the sole senior equity marketplace in Canada following a series of acquisitions. All Canadian equity trading flowed through a singular venue, but there were two major events that followed, setting the stage for increased competition and market fragmentation.  

In April of 2000, the TSX demutualized, transitioning from an organization owned and operated by its member brokerage firms into a for-profit, shareholder owned company incentivized to innovate and compete. 

The following year, the Canadian Securities Administrators (CSA) introduced National Instruments 21-101 and 23-101. These regulations created the legal framework for Alternative Trading Systems (ATSs) to operate in Canada, shifting the Canadian trading landscape from a single-exchange environment (TSX) to a multi-venue market. 

What followed was the emergence of new ATSs such as Chi-X Canada, Alpha ATS, and later Instinet Canada. Each was created with unique matching models, fee structures, and routing rules creating widespread market fragmentation. 

Best Execution, OPR and the Rise of Smart Order Routing 

With the arrival of multiple marketplaces and ATSs on the rise, trading using manual routing to a single destination was no longer sufficient. Fragmented liquidity made best execution nearly impossible from a single venue, so dealers began monitoring multiple venues simultaneously. 

Using algorithms, a single Smart Order Router could scan across multiple markets and create a consolidated view to find the best price and automatically route the order to that venue. The physical liquidity was fragmented, but SORs were able to stitch together markets to provide traders with a singular look at liquidity. 

In an effort to democratize order routing, the CSA implemented the Order Protection Rule (OPR) in 2011 to require, “all visible, immediately accessible, better-priced limit orders to be filled before other limit orders at inferior prices, regardless of the marketplace where the order is entered”.  

This solidified SOR as not only a technological advantage but a regulatory necessity. With Canada’s full depth-of-book obligation, SORs also needed to evaluate multiple price levels across venues, creating further complexity in routing.  

OMS platforms evolved in step with regulatory change by integrating SORs directly into their workflows along with real-time market data, latency-sensitive routing, TCA, and advanced order types like Directed Action Orders. This made execution more sophisticated than ever. 

HFT, Adverse Selection, and the Dark Pool Era 

As market fragmentation increased, so did speed. High-frequency trading (HFT) became a growing force in Canadian markets, using millisecond advantages to capture arbitrage opportunities. For institutional desks, this introduced adverse selection, the risk of a trade executing just before the market moves against you, often due to the counterparty having better information or speed. 

To minimize signaling and reduce market impact, traders increasingly turned to non-displayed venues like MATCH Now, Liquidnet, and Sigma X, where large blocks could be executed with reduced visibility. 

Meanwhile, advances in the FIX protocol, EMS platforms, and smart order routing, made it possible to integrate dark pools into execution workflows but concerns around transparency and market integrity, particularly for smaller orders, led regulators to act.  

In 2013, the CSA implemented National Instrument 23-103, requiring dark orders under 5,000 shares or $100,000 to offer meaningful price improvement, typically by executing at the midpoint or better. 

While dark trading in the U.S. remains prevalent, Canada has taken a more conservative approach. There are no off-exchange reporting facilities and mandates require all dark activity be reported to regulators, such as IIROC, at the end of the day, due to concerns about maintaining lit market integrity.  

Innovation in Venue Models 

With changing market dynamics and new regulatory requirements came innovations in matching and advanced order types. Conditional orders, midpoint peg orders, and broker-customized SOR logic emphasized execution quality over speed and created safeguards in Canadian trading against toxic flow. 

Many of these innovations were first tested in U.S. markets before Canadian market participants implemented and adapted them to maximize execution quality while navigating their regulatory framework. 

In recent years, there have been several advances to marketplaces in Canada, including: 

Alpha-X and Alpha DRK introduce a 3ms speed bump and Smart Limit™ / Smart Peg™ order types to defend passive orders, Canada’s answer to IEX and D-Limit logic. 

PureStream (via Nasdaq Canada) offers trajectory-crossing block execution based on volume profiles, a dark logic solution for minimizing information leakage and maximizing fill quality. 

Lynx ATS shifts to randomized periodic matching to neutralize speed advantages, reducing latency arbitrage and protecting midpoint liquidity. 

With innovations in marketplace models came new demands for OMS technology. They began to support venue-specific instructions, allow for custom workflows, and offer trader-level configuration options which gave users precise control over how, where, and when their orders interacted with the market. 

Looking Ahead: The Next 25 Years 

“Over the past 2.5 decades, Canada has transitioned into one of the most complex, dynamic, and fast-paced marketplaces the world over.  A multi-destination market center with several of the largest banks playing prominent roles in the global landscape,” reflected Rajiv Kedia, Global Head of Sell-Side Trading Solutions at FlexTrade.  

As we look to the next 25 years, Kedia sees increased cross-border integration and multi-asset complexity reshaping the sell-side’s priorities. “Many of the banks we have spoken to view the U.S. and Canada as one unit with ever-growing flows on both sides of the border.” 

He continued, “Add this to the growing sophistication of the buy-side where they view multiple asset classes and regions with highly different rules, regulations, trading hours and currencies as a single unit. They expect the sell-side to handle these seamlessly or risk losing trading volumes. All of this is backdropped with the continued compression of spreads and commission dollars; along with rising technology, infrastructure, and cybersecurity costs. This environment promotes a rethink in strategy towards technology.” 
 
With 10% of TSX-listed securities interlisted in the U.S., cross-border trading has already become a defining feature in Canadian markets, but not every firm is operating on the technology necessary to adapt.  

According to a study by Crisil Coalition Greenwich, more than half (57%) of respondents view legacy infrastructure and siloed processes as top inhibitors to digital transformation — many of which are in-house builds and may not accommodate integrating advanced technology.  

Kedia believes sell-side firms will need a global technology partner with, “a plethora of sophisticated tools; APIs, rules engines, adapters, and interfaces into their trading platform that can react much more quickly to market demands and changes.” 

Harnessing Innovation and Collaboration in Canada

From CSTA President and Chief Trading Officer of AGF Management, John Christofilos’ vantage point, the future is an opportunity to harness innovation while improving collaboration. “The continued advent of innovation and technology—whether it’s tokenization, 24-hour trading, or AI—will create significant change to our ecosystem. Having an open mind and thinking of new ways to improve connectivity between the buy and sell-side will be crucial.” 
 
While Canadian firms have consistently navigated seismic regulatory shifts with innovative technology, Christofilos contended that, “the power of the relationship is as important as ever because there is so much technology between the buy and sell-side. When I finally finish my career, relationships will still be a major component of the trading process and a paramount point of interest for the street.”