From the Regulators

SRO publishes final academic paper on impact of HFT

By IE Staff |

The Investment Industry Regulatory Organization of Canada (IIROC) announced on Friday it will host a public forum on high frequency trading (HFT) on Oct. 19, in collaboration with the Capital Markets Institute at the Rotman School of Management, University of Toronto.

The forum will feature authors of the academic papers produced for the self regulatory organization (SRO), including the fifth and final paper also published Friday, as part of IIROC's comprehensive study on the impact of HFT and related activity on Canadian equity markets. IIROC's analytics team will also present its paper on the impact of the dark rule amendments introduced in 2012.

"This forum will provide an opportunity for the authors, market participants, regulators and other stakeholders to engage in a robust, thought-provoking dialogue about their findings and emerging themes," said IIROC president and CEO Andrew Kriegler in a statement. "It is important to discuss how our markets are evolving, as well as the challenges and opportunities for Canada to build on our reputation for sound, well-regulated capital markets."

The fifth academic paper, Liquidity Provision and Market Making by HFTs, co-authored by Katya Malinova and Andreas Park, examines the market-making behaviour of high frequency traders. It describes how high frequency market makers submit quotes relative to posted prices and analyzes how they react to trades.

In December 2014, IIROC published academic papers prepared by three of the four academic teams. IIROC published the first academic paper from the fourth team in March 2015.

See: IIROC report finds new rules for dark markets had little impact
See: Papers shed light on HFT impact: IIROC

IIROC will review and discuss all of the papers internally, and with other regulators and key stakeholders, before determining what, if any, regulatory response may be required in light of the findings.  

The 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.

See: IIROC study sheds light on high frequency trading

IIROC's HFT Study will complement other initiatives already adopted by IIROC to govern high frequency and algorithmic trading. In particular, in 2013 IIROC issued guidance on manipulative and deceptive trading. Surveillance alerts have been implemented and IIROC is actively monitoring to detect these rule violations.