The Toronto-Dominion Centre Working

2:30pm – 3:30pm, 30th March 2014

Toronto-Dominion Centre and Bay St financial district, Toronto, Canada

 

Preparation material: Francis James Chan’s The Prop Trader’s Chronicles: Short-Term Proprietary Trading Strategies for Both Bull and Bear Markets (Hoboken, NJ: John Wiley & Sons, 2013).

 

Aims:

 

(i) Understand the geography of Toronto’s financial district.

(ii) Make a psychological connection to Toronto’s bank prop traders.

 

Results:

 

Chan’s book on intraday trading at a Toronto-based proprietary trading firm alludes to inter-firm competition amongst Bay St trading firms. On arrival in Bay St it became clear that Canada’s five major banks — Bank of Montreal, Scotiabank, the Canadian Imperial Bank of Commerce, the Toronto-Dominion Bank, and the Royal Bank of Canada — dominate the area.

 

The dominance of bank proprietary trading desks explains several aspects that Chan had omitted from his description of intraday trading strategies. Chan and others relied on contracts for difference without overnight holdings. They attempted to understand the order flow of market microstructure using Level II quotes from the NYSE and NASDAQ exchanges rather than technical analysis charts. In game theory terms this was Chan’s attempt to use the best available dominated strategies in a predator-prey ecosystem that the banks dominated.

 

The Toronto-Dominion Centre evokes this institutional banking power in Ludwig van der Rohe’s modernist, international architecture. The TD Bank Pavilion, TD North, and TD West buildings impose themselves on the surrounding area. Their tenants include banking, financial services, investment banking, investment brokerage, and private equity firms.

 

On 11th October 2011, I had visited the Tokyo Stock Exchange and formally began a personal research program “to develop a private, low-key, personal vehicle for long-term self-sufficiency.” The Toronto Stock Exchange was closed so I was unable to repeat the experience. Instead, I stood in the TD Bank Pavilion and grasped the essence of institutional banking power evoked in Adam Smith’s satirical book The Money Game (London: Michael Joseph, 1968).

 

Later that afternoon I visited the Toronto Eaton Centre and the Indigo Books & Music store. Indigo’s business and investment book section was a mix of inspirational biographies; retail investor primers; and technical analysis books. Much of this is outdated information from an institutional banking perspective which relies on non-public trade secrets. I bought a paperback copy of Nassim Nicholas Taleb’s Antifragile: Things That Gain From Disorder (New York: Penguin, 2012) as a reminder of the tacit knowledge that a trader may create through personal experience, research, and reflection.

 

The next day I read the new Michael Lewis book Flash Boys: A Wall Street Revolt (New York: W.W. Norton & Co., 2014) which features former Royal Bank of Canada trader Brad Katsuyama – founder of the IEX Group dark pool – and critic of high-frequency trading. Lewis describes RBC as a sleepy backwater compared to Wall Street but this wasn’t my sense when walking past the RBC Centre in Wellington Street West, Toronto.

 

Several days later I learned of a new University of Toronto study (PDF) on how retail traders and high-frequency traders interacted on the Toronto Stock Exchange in 2012. The study felt like a research counterpoint to the Lewis book. The study found that retail investors largely benefited from the market microstructure of high-frequency trading firms.

 

I resolved to do two things over the next five years:

 

1. To develop a greater awareness of how bank proprietary trading desks affect market microstructure using dominant trading strategies in a predator-prey ecosystem.

 

2. To continue to develop a personal knowledge base and decision heuristics akin to Nassim Nicholas Taleb’s published work.