IIROC has announced completion of a study it commissioned on High Frequency Trading (HFT) and its impact on Canadian equity markets.
The results of the study, says the SRO, did not reveal any concerns that warranted a regulatory response beyond measures already implemented by IIROC and indicate that the presence of HFT has different impacts on Canadian equity markets and those who invest on those markets. Findings include:
- HFTs generally provide more liquidity.
- HFT liquidity provision can be significantly lower when a large trade is considered stressful – that is, when the volume of a large trade represents a higher than normal percentage of all trading volume on the day.
- HFTs contribute substantially to price discovery.
- The majority of passive orders entered by HFT either improve the best price or match the prevailing best prices.
- There is little evidence that HFTs take advantage of slower non-HFTs or front-run non-HFTs. (Front-running occurs when a market participant makes a non-client transaction that may affect a security’s market price before filling a client order for that security.)