by Brian DeChesare Comments (6)

Sales & Trading in Canada: Recruiting, Salaries, Bonuses and More

Canada Sales & Trading
I’ve made several attempts to cover investment banking, private equity, and pension funds in Canada, but sales & trading has not yet made that list – until now.

I recently spoke with a long-time reader who’s worked across different desks in Canada and who’s seen the recruiting process from both sides.

As you’ve probably guessed, S&T in Canada is quite different from S&T in markets like the U.S. and U.K.

Here’s all the information I extracted:

Canada Sales & Trading: Breaking into the Industry

Q: Can you start by giving us a brief overview of your story and how you got into the industry?

A: Sure. I went to one of the “target schools” in Canada (i.e., Ivey, Queen’s, McGill, Waterloo, Rotman, Schulich, and maybe a few others), completed internships in asset management, and then won an S&T internship from one of the top Canadian banks.

Then I converted that internship into a full-time role – but at some banks in Canada, you still complete rotations even in “full-time roles,” so I worked on a few different desks before settling on my current one in a permanent role.

My biggest advantage was that I knew very early on that I wanted to work in the public markets, so I could prepare far in advance and plan my internships.

The recruiting timeline in the U.S. is officially insane, and while it’s not quite as bad in Canada, it has been moving up each year.

Also, competition for jobs at Canadian banks has been increasing because many U.S. firms have had trouble sponsoring U.S. work visas due to the “political situation” there.

Q: Were there any significant differences in the recruiting process?

A: In my experience, Canadian sales & trading interviews tended to be more technical.

There are so many solid undergraduate business programs here that they expect you to know the material quite well.

For example, you could walk into an interview and immediately start getting questions about “the Greeks” and other options-related concepts, but that would be less likely in the U.S. or U.K. unless you brought up the topic first.

Also, while it’s important to be at a target school for investment banking recruiting, it may not matter quite as much for sales & trading; banks here still recruit for S&T roles at “lower tier” schools.

Banks here do not yet use HireVue for video-based interviews to the same extent that U.S.-based banks do, but they do give case studies in interviews, such as securities pitches or risk-management scenarios (e.g., “How would you help an airline hedge its fuel price exposure?”).

The biggest difference, though, is that there’s little job security even if you win a full-time offer because some banks here like to prolong the rotational experience until you’re in the right place at the right time.

By contrast, in New York, banks like GS and JPM hire dozens of students for sales & trading summer internship roles, and there’s enough turnover that full-time spots will open up.

But Canada is a much smaller market, so there are no guarantees.

To win a non-rotational, full-time role on a desk, you’ll have to network to find out which desks might have headcount space, reach out to staff, and impress the senior traders.

At some banks, the process to create “full-time equivalent” (FTE) headcount is very bureaucratic, which adds to the delays.

If you don’t find a permanent role after ~2 years, they might ask you to find a middle or back-office role instead.

NOTE: The description above does not apply to all banks – some may hire you on a specific desk following a summer internship. But it’s less likely than in other regions.

Sales & Trading in Canada vs. the U.S. and U.K.

Q: That sounds pretty brutal.

What else can you tell us about the industry there?

A: The main difference is that it’s a smaller, more saturated industry.

It’s more or less dominated by the top Canadian banks (RBC, TD, Scotiabank, BMO, CIBC, and National Bank), and each one has a big chunk of this smaller market.

As a result, the business pace is slower, and peoples’ attitudes are more relaxed.

The U.S. and U.K. markets are far bigger, which means more competition and more of a go-getter attitude; clients will pick the firm that gives them the best pricing.

But in Canada, “loyalty” to the domestic banks is very strong, and clients such as asset managers often split their business among the banks.

Q: Was it always like this? Did the global bulge-bracket banks ever have much of a presence in Toronto or the rest of Canada?

A: They all used to have trading desks in Toronto, but they’ve gradually shut down in the decade following the 2008-2009 financial crisis.

BAML (and HSBC, to a lesser extent), is the only non-Canadian bank with a significant trading floor remaining here.

The rest have a few people or just salespeople or sales-traders, but not full-service S&T businesses. Banks like Citi also have treasury desks up here to manage their Canadian balance sheet.

Banks like to maintain a sales presence in Toronto for coverage purposes, but they don’t necessarily need to execute trades from there.

Some of the global banks have “Canada Fixed Income” desks, but they’re often in New York rather than Toronto because there’s no need to be in Canada physically.

Also, it’s easier to cross-sell S&T products to investment banking clients if both groups are in the same city. We see this a lot with interest rate and currency hedging products.

Q: Does anything else explain why the Canadian banks dominate the market so much?

A: Besides the smaller market and the decline in sales & trading headcount, the other factor is that many S&T clients in Canada are sovereigns and sub-sovereigns such as the provinces, larger cities, and even some universities and health systems.

For domestic borrowing in CAD, these clients only want to deal with domestic banks, which explains why Canadian banks also dominate DCM.

But these sovereign clients tend to pay lower fees than normal companies, so banks need to find other ways to monetize the relationships.

Those could include secondary trading of the bonds and issuance-related hedging activities, both of which lead back into sales & trading.

Q: You’ve been mentioning Toronto. What about other locations, such as Calgary, Montreal, and Vancouver? Is there much trading there?

A: Trading is concentrated in Toronto, but there is some activity in other cities.

Calgary, as you’d expect, is energy-focused, with many commodities trading desks.

Many international firms still operate there, including Goldman Sachs’ oil and natural gas trading desks and similar ones for the integrated major oil & gas companies.

Most domestic banks and some foreign banks have trading teams in Montreal because there are quite a few large institutional accounts in Quebec, such as pensions, that prefer local coverage.

There are some salespeople in Vancouver and Ottawa, but not a big trading presence.

Vancouver focuses on mining and forestry, and the institutional demand there comes from firms like PH&N (acquired by RBC) and the BC pension fund (BCIMC).

I was open to anything, and I came close to winning an offer on an energy trading desk in Calgary.

Physical commodities trading requires a very different skill set than derivatives trading and opens different doors, and I wanted to learn about the logistics and scheduling required.

Canada Sales & Trading: Careers

Q: On that note, what are the most common desks in Canada?

For example, is FX within fixed income trading more important because many companies pay for their expenses in USD and want to hedge against currency fluctuations?

A: I’m not sure if it’s just my bank, but over the past decade, we’ve been focusing a lot more on the DCM business and related credit products.

As I mentioned before, a lot of borrowers here are sovereign and sub-sovereign names, and we do a lot of rates trading to maintain liquidity for their bonds.

Interest rate derivatives and other FX products also support these markets.

Japanese and Canadian banks have been winning more market share from European and U.S. banks in these areas (though some, like Nomura, have since retreated and cut costs).

In terms of equity trading, everything is becoming more automated, and Cash Equities has taken quite a hit.

In Equity Derivatives, the Delta One business (i.e., desks that trade linear or non-option equity products, such as equity return swaps) has changed significantly because of tax changes.

Specifically, the IRS in the U.S. and CRA in Canada shut down a dividend/tax-arbitrage scheme between pension funds and banks that provided tax savings to banks, so this business lost a lot of its appeal.

Structured notes, i.e., debt issuances that contain embedded derivatives, are also becoming more popular among retail investors.

Options volume and liquidity in many FICC products have worsened even as market transparency has improved, mostly because global macro hedge funds have done poorly.

Hedge funds are “two-way” players in options, but companies using options for hedging purposes are “one-way,” which means that most market makers have identical positions – not great for liquidity.

Q: You mentioned “retail investors” just now, but I assume they’re a small segment of the market.

How would you describe the Canada sales & trading client base?

A: The main difference is that the hedge fund industry is far smaller in Canada than it is in the U.S. or U.K., so there are fewer hedge fund clients and also fewer prop trading firm clients.

The biggest “hedge funds” are within the pension funds, and some of them, such as CPPIB or Caisse, have discretionary trading strategy teams that are similar to global macro funds.

So, our biggest clients tend to be pension funds, insurance firms, bank-owned asset management groups, and government borrowers, including central banks.

Independent, international asset managers (e.g., BlackRock and Vanguard) have some exposure in Canada, but they trade based on pricing rather than loyalty.

The trading volume is also much lower – look at the size and daily volume of the iShares TSX 60 (XIU) and iShares S&P 500 (IVV) to see the difference.

Q: Thanks for that description.

Can you discuss compensation and the S&T career path?

A: When you start, the base salary is about the same as in IB: around $80K to $100K CAD, with a variable bonus that’s some percentage of the base salary.

The difference is that when you’re in the rotational program, the bonus tends to be lower than in other markets and investment banking because you’re on the HR payroll, not the payroll of a specific desk.

Even as you progress, there will still be a discount because Canadian banks’ market divisions are smaller and take less risk.

Canadian banks try to pay closer to market rates in offices such as New York and London, but you’re still likely to earn more at a large, global bank.

My very rough estimates for average total compensation would be:

  • Analyst and Associate: $100 – $200K CAD range
  • VP: $250 – $350K CAD range
  • Director: $400 – $600K CAD range
  • Managing Director: Just over $1 million CAD

These figures might seem similar to pay at U.S. banks, but these are in Canadian dollars, which are almost always worth less.

From a PPP perspective, you might come out ahead in Toronto because the cost of living is lower than in London or New York (even in our rapidly inflating real estate markets!)

But past a certain point, the lower bonuses may start to outweigh the lower cost of living.

If you work at a Canadian bank, you’ll earn less, but you’ll be in a friendlier environment and you’ll have better long-term job security, relative to S&T in other regions.

The career path and progression are similar to those in the U.S., and at the top, there are still “management” MDs and “sales/trading” MDs.

Turnover tends to be lower because fewer professionals at the mid and top levels leave voluntarily, so you may not be able to advance any faster in Canada.

Q: The Volcker Rule killed prop trading in the U.S., but it was never officially banned in Canada, right?

Couldn’t that make compensation higher?

A: In theory, yes, but in reality, most prop trading desks here have also shut down.

RBC still runs one, called “Global Arbitrage & Trading,” but that’s about it.

It is a very well-regarded group with dozens of professionals in Toronto and New York – but even that group is still running only because U.S. regulators rejected a plan to spin it off into a separate hedge fund.

There are no official regulations against prop trading in Canada, but banks still have to comply with international rules and regulations if they want clients and operations in other countries.

Also, even if prop trading did still exist, compensation formulas have become much murkier and are no longer as simple as “you earn X% of your P&L.”

Banks also factor in performance across other departments and the industry as a whole, and there are additional funding, compliance, and technology costs, meaning that each $1 on the P&L is split into more pieces.

Sales & Trading Exit Opportunities and Final Thoughts

Q: Thinking about everything we discussed, who would be a good fit for sales & trading in Canada? And who would not be a good fit?

A: I tend to agree with your conclusions in the sales & trading vs investment banking article: if you know you want to work in the public markets, you’re more quant-oriented, and you want to do it for the long term, S&T could make sense.

It can still be a lucrative career, even though it’s less appealing than it once was.

But if you’re not sure what you want to do long term and you want career flexibility, I’d recommend against it.

This advice is even truer in Canada because it’s harder to move around to other fields after working in sales & trading.

Q: Speaking of that, what are your options if you want to leave the field? And what are your own plans?

A: People tend to stay in sales & trading, go to an asset management firm, or join a pension fund’s trading team.

Besides those options, many of the Analysts and Associates from my class have switched to investment banking industry groups or markets-based groups like ECM or DCM, and some have moved into fintech, which is a booming industry in Toronto.

If you’re willing to take an initial pay cut in exchange for potential future upside, there’s a huge demand for people who know both finance and technology.

As for me, I still like the markets and trading, but I don’t think the long-term outlook for S&T is great, so I am thinking of moving to an asset management firm or pension fund eventually.

Q: Thanks for your time!

A: My pleasure.

M&I - Brian

About the Author

Brian DeChesare is the Founder of Mergers & Inquisitions and Breaking Into Wall Street. In his spare time, he enjoys memorizing obscure Excel functions, editing resumes, obsessing over TV shows, traveling like a drug dealer, and defeating Sauron.

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Comments

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  1. Hello Brian,

    I am currently doing a master in finance (M.Sc) in canada after an engineering background (and a two years work experience). I will graduate in exactly one year and I am lucky to do a great internship in Market finance this summer.
    I would be interested in knowing what “role” I should try to target in the next few months:
    1) Should it be an analyst role ?
    2) Should it be an associate role ?
    3) Should it be an internship ?
    4) Should it be everything ?

    I read that people with an MBA or finance related experience should target more like an associate role, but I have not read about people doing a M.Sc in Finance.

    Another topic I am very interested in is rotational programs ! They are very popular in Canada. They now differenciate IB and S&T and I wonder if you have any plans to write an article about them :)

    Thanks for your work, I appreciated every article you wrote on this website !

    1. Non-MBA Master’s programs lead to Analyst roles. Your goal should be to complete an internship and then win a return offer or leverage that internship to win a full-time role elsewhere.

      We have covered rotational programs before, even in Canada:

      https://www.mergersandinquisitions.com/investment-banking-non-target-mba-no-work-experience/

  2. Question for brian or the author,

    For an incoming FT associate in canadian s&t, how neccessary is it to have experience with VBA or other programming languages? I don’t know what desk I will be on, but so far I only have mid-level experience with excel and some basic modeling.
    Survival of the fittest? will I crash and burn?

    1. VBA is quite useful for most S&T roles, and “real” programming languages are becoming increasingly useful as well. I don’t think you need to be an expert, but it would help to gain some experience using languages like Python and R to manipulate large data sets. And gain some practice using VBA to automate simple tasks in Excel like refreshing stock prices, removing formatting/logos, etc.

  3. Hi Brian,

    I am currently a SA S&T in Canada and want to move to IB. Would you recommend I go into S&T full-time (if given the offer) and then lateral over inside the big 5 bank? or would it be better to go the buyside/transaction advisory route?

    Thanks

    1. I think it’s definitely better to accept a full-time role and then try to move around internally if you want to move into IB eventually. It will be more difficult to get in if you’re coming from outside a bank, especially in Canada.

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