(November 24 – 18:15 ET) – The retail business is driving Canada’s securities industry to a record-breaking performance for the third straight quarter, says the Investment Dealers Association in the Securities Industry Performance report released today.

The IDA says industry operating profit of $2.8 billion for the nine months ended September 30, is more than double from the same period a year ago. Net profit totalled $1 billion, nearly three times the year earlier level. On this basis, the IDA projects the year-over-year increase in revenue and pre-tax earnings for the Canadian securities industry at 36% and 82%, respectively.

The IDA says this outstanding performance is increasingly relying on the retail business. Trading volume on Canadian stock exchanges is on average 50% higher than the same nine months last year. Retail revenues were further boosted by gains in fee revenue from advisory earnings and various types of wrap accounts, pushing retail earnings up 56% year-over-year.

The IDA notes that over the past three years, fee income has expanded dramatically as a share of total revenue as securities firms have developed a wide array of fee-based products and services. The interest spread earned on client cash balances held at dealers also boosted the bottom line. Over the past five years, client cash holdings have doubled, reflecting the substantial shift of household sector financial assets to investment products distributed by dealers. Specialized retail firms have done particularly well this year, with brokerage revenues up 55% and operating profit up four-fold. Commissions from the sale of foreign asset mutual funds accounted for the lion’s share of mutual fund commissions this year.

According to the IDA dealers are also on track to earn record revenues from equity market making. For the first time ever, equity principal trading revenue will outpace fixed income trading revenue. Principal trading revenue soared this year, the IDA says, mainly in response to increased investor flow, substantial market volatility, and the opportunity to trade profitably on a proprietary basis. While they got out of the slumping fixed income business, or as the IDA notes, “dealers will continue to dismantle infrastructure and streamline operations in response to the continuing bleak outlook for fixed income market making.”

Investment banking revenues continue to slump. The IDA says the domestic institutional boutiques recorded particularly solid revenue gains, thanks to active equity financing in public and private markets by smaller companies, particularly those with a technology focus.

The industry has been handling this boom in trading activity largely without staffing up. Industry employment is up only 8%.
-IE Staff