IIROC has announced the selection of a third project team to assess the impact of high-frequency trading (HFT) and related activity on Canadian equity markets.
The team is comprised of two professors at educational institutions in Chicago, who have extensive experience studying, teaching and publishing reports about HFT, algorithmic trading and other market structure issues internationally.
They’ll examine the role of high-frequency traders as (non-designated) “market makers” in providing liquidity during periods of market stress, and how that compares to the liquidity offered by designated market makers and other traders during these periods. Because HFTs have no obligation to provide liquidity, it’s unclear whether market stability is improved during stressful periods when liquidity is needed most.
In April 2014, IIROC announced the selection of the first two project teams. All the teams will 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 HFT Study completed by the end of 2014.
“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,” says Susan Wolburgh Jenah, IIROC president and CEO. “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. IIROC’s study will complement other initiatives already adopted by IIROC to govern high frequency and algorithmic trading.
In particular, in 20I3 IIROC issued guidance on manipulative and deceptive trading. Surveillance alerts have been implemented and IIROC is actively monitoring to detect these rule violations.