High-frequency trading is becoming a topic of hot debate.
Some fund managers consider high-speed traders a threat, while others see them as beneficial to markets or don’t realize how they might impact client returns.
Last year, The Washington Post said the opposing viewpoints of advisors and execs “hint at the dilemma facing regulators as they try to determine whether to rein in high-frequency trading, which now accounts for at least half of all trading activity on U.S. exchanges.”
Indeed, regulators have been focusing on whether they should rein in high-speed traders. In particular, IIROC is trying to determine whether companies with high order-to-trade ratios should be flagged as possible market manipulators due to the effect of rapidly placing and cancelling of orders.
And since December 2012, the regulator has focused on the impact of high-speed trading on Canadian markets overall. It launched a study, and the first two phases objectively identified groups of traders involved, and offered statistical analysis of their activities.
In May 2013, the regulator then requested research assistance from interested outside parties with expertise in the area of market structure. These parties will assist in phase three of the study, which will reveal how such activity affects the quality and integrity of Canadian markets.
Interested parties were asked to submit proposals addressing the following areas:
- Identification and analysis of HFT entities’ and other (retail/institutional) trading behaviours;
- Analysis of the impact of market structure changes on HFT behaviours; and
- Analysis of the impact of identified behaviours on market quality and on other market participants
All research will help inform Canadian market policy direction and controls going forward.