National Bank Financial hires managing director for energyCharla Jones/The Globe and Mail
Traders whose job it is to make markets in individual stocks, buying and selling no matter how rough the markets, are becoming an increasingly endangered species as fast-moving markets and shrinking margins eat into profits.
The latest to find this out are 48 traders at National Bank Financial, who are being let go as the bank moves its stock market-making operation, one of Canada's biggest, onto an electronic system.
Market making is one of the key foundations of an orderly stock trading system. Traders were tasked with standing in and ensuring there was always a bid to buy stock and an offer to sell it, no matter how chaotic trading got. A skilled trader – known as a pro – could make money by trading on both sides of the bid-offer spread.
However, markets have gotten so fast, and computer systems so good, that it's easier for some firms to do it electronically. Old-style market making firms have largely abandoned the New York Stock Exchange, which once had more than two dozen firms doing the job. In their place, computerized traders have popped up.
"When the volumes slow down, the ability of a manual, labour-intensive trading group to generate profits, it changes," said Greg Thompson, head of global equities and investment banking at National Bank Financial. "Industry conditions changed. On a secular basis, the business has become more competitive. It's so fast, and well-served electronically with sophisticated trading tools."
NBF has been making markets in exchange traded funds and other securities electronically, and now will do the same with the 196 Canadian stocks that it is charged with making a market for.
"For us, it was a very natural progression to use tools we have been using for ETF strategies and get away from traditional market making," said Laurent Ferreira, head of derivatives at NBF. The firm "will still be providing liquidity [just] in a more effective way."