Canadian regulators are going to get to the heart of the high-frequency trading matter, starting now.
The Investment Industry Regulatory Organization of Canada, that nation’s leading regulator, has selected two separate project teams to assess the impact of HFT and related activity on Canadian equity marketplaces as part of the final phase of its ongoing HFT Study.
Last November IIROC completed the second phase of its study where it gathered and analyzed data to determine the impact of high-frequency trading on the Canadian stock market. As Traders reported back then, IIROC wanted to compile a body of data solely attributable to HFT and then release it to academics for further study, according to Deanna Dobrowsky, a vice president in IIROC’s market regulation policy department.
Now with hard data in hand, the regulator is assembling a team to interpret the data, assess the impact of HFT and make policy recommendations. IIROC can then decide whether or not to implement new regulations.
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In 20I3, IIROC issued guidance on manipulative and deceptive trading. The regulator has issued surveillance alerts and the regulator said it is actively monitoring to detect these rule violations.
The two project teams are comprised of several professors, at renowned educational institutions across North America, who have extensive experience studying, teaching and publishing reports about HFT, algorithmic trading and other market structure issues internationally.
The first project team will focus on the impact of HFT in cross-market liquidity provision, risk management and information transmission. In focusing on these areas, the team will try to better understand if HFT firms are integrating markets and whether or not their activities are beneficial.
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The second project team will focus on the effects of short-selling by HFT and other market participants on market liquidity, stability, price efficiency, and price discovery on Canadian securities markets.
“We believe it’s important to address identified regulatory concerns relating to HFT using empirical data and objective study to better understand its impact on market integrity and quality, as well as overall investor confidence,” said Susan Wolburgh Jenah, IIROC president and chief executive officer. “This research, combined with IIROC’s ongoing work, will help to inform any further policy making or regulatory interventions.”
This impact analysis is the third phase of IIROC’s HFT Study. It follows the publication of the first two phases of the study in December 2012 which objectively identified a study group of traders and offered a detailed, statistical analysis of their activity.
The teams will, as part of their research, have access to secure and “masked” data for the period of January 1, 2012 to June 30, 2013.
IIROC expects to have the final phase of the three-part study completed by the end of 2014.
