IIROC will focus on firms that have high order-to-trade ratios to determine if firms should be flagged, says Victoria Pinnington, the SRO’s VP for trading review and analysis.

She notes rapid placing and cancellation of orders can indicate manipulative trading activity.

Those who engage is such activity will be categorized within a “hot user group,” she told Canadian Equity Market conference, presented by Ontario Securities Commission and IIROC in Toronto today.

Read: IIROC watching for market manipulation

She adds an IIROC study finds these hot users are most active at the opening and close of sessions.

This group was responsible for 32% of trading during the study period. Half that trading took place on the TSX.

These users are also responsible for much of the value on the exchanges where they trade.

A full 21% of their trading is in ETFs and ETNs, and they’re responsible for more than half of the trading in that security type.

Further, hot users are more actively engaged than their peers in dark markets and iceberg trading, where orders are only partially visible.

While some of the activity is what IIROC expects, Pinnington says the next phase of the study will look at specific trading strategies in play at the firms.

Read: Can a flash crash happen again?

Panelists discussing high-frequency trading note rules changed in 2007 and 2008, when exchanges were looking for order flow and brought these activities into Canada. And, to an extent, the markets cater to these traders.

Further, technological developments will continue to advance as clients seek better and faster market access.

As one panelist notes, “There are these big, bad HFTs out there that nobody can define. But there’s this fear of the unknown.

“Instead, people need to try to understand them and look for the real issues that are eroding confidence in the markets.”

Panelists also point out iceberg orders and dark pools existed prior to high-frequency trading.

That’s where a good broker can provide value by taking advantage of informational arbitrage.

What’s happening now is all about a shift in the economics of trading. The markets make less on the transaction side and try to make up for it elsewhere.

Trading venues need to make a profit and the technological arms race going on right now means HFT is one of the keys to improving profits.