March 18, 2025 — Canadian institutional investors are paying more attention to small and mid-cap stocks, and they are looking to their brokers for help accessing this market segment with enhanced liquidity and service. 

The Canadian institutional equity trading landscape is a bit of an outlier. Relatively small but mature and complex, it provides a diverse array of exchanges and alternative trading systems for investors to choose from. Compared to other similarly developed markets, Canadian trading volumes tend to be lighter, leading to liquidity challenges, particularly for smaller-cap stocks.

“The high concentration of assets under management among a few large asset managers, combined with lower trading volumes and liquidity challenges, particularly for smaller-cap stocks, has led to a prioritization of efficient access to liquidity and high-quality brokerage services among the Canadian buy side,” says Jesse Forster, Senior Analyst at Crisil Coalition Greenwich Market Structure & Technology and author of Canadian equities 2024: Navigating liquidity challenges and embracing electronic trading.

New data from Crisil Coalition Greenwich shows that institutions’ growing interest in small and mid-cap stocks is influencing their decisions about which brokers, and which broker algorithms, they should use for trades. The share of Canadian buy-side firms citing “small- and mid-cap liquidity” as the primary criterion for broker selection in algorithmic trades jumped to 40% in 2024 from just 1 in 10 in 2022. 

For brokers, this means capabilities in small- and mid-cap equities are playing a bigger role in the competition for trading volumes, commissions and revenues. Canadian managers reported a modest 5% increase in equity commission wallets in 2024. However, due to high levels of concentration, competition for incremental commission dollars can be fierce. 

In addition to enhanced liquidity in small and mid-cap equities, buy-side firms say Canadian brokers competing for their trading commission dollars should focus on cultivating personal relationships, providing superior overall service that helps investors navigate increasingly complex markets, and continually upgrading electronic trading capabilities. 

“Despite a decline in algo trading last year, traders expect it to resume its upward trend, reaching 29% of notional value in three years, driven by the adoption of new electronic channels and the growing importance of small- and mid-cap liquidity,” says Jesse Forster. 

Canadian equities 2024: Navigating liquidity challenges and embracing electronic trading highlights the importance of personal relationships, high-quality support and value-added services in the Canadian equity trading market, as well as the growing importance of small- and mid-cap liquidity and electronic trading.