With markets becoming increasingly fragmented and dominated by electronic trading, global securities regulators are looking for ways that market watchdogs can improve their surveillance capabilities.
The International Organization of Securities Commissions (IOSCO) Wednesday published a new report for consultation, which seeks comments on a series of proposed high-level recommendations aimed at helping market authorities improve surveillance.
The report is based upon the results of an IOSCO survey, as well as submissions from trading venues, regulators, and industry representatives. It poses questions for consultation and outlines proposed recommendations for improving surveillance capabilities on a cross-market and cross-asset basis; and, making the data collected for surveillance purposes more useful to regulators.
“Securities markets have experienced a dynamic transformation in recent years. Rapid technological advances and regulatory developments have produced fundamental changes in the structure of securities markets, the types of market participants, the trading strategies employed, the increase in the speed of trading and the array of products traded,” it notes. And, at the same time, trading has become more fragmented and competitive.
IOSCO also notes that the risks posed by illegal, or inappropriate, trading can be substantially increased by automation, and the speed at which trading occurs makes it harder to monitor markets effectively, it says. Fragmentation has also made it more difficult to monitor and trace orders and transactions, it says.
“These developments pose challenges to regulators in conducting market analysis and surveillance, and in reconstructing important trading events,” it says. “Current surveillance techniques, including the collection, storage and accessibility of data may be insufficient to capture in a timely manner all of the information necessary to monitor efficiently and effectively trading activity that occurs in the current highly automated and dispersed markets.”
The lack of certain market surveillance tools, such as an audit trail system, is “one of the more significant problems facing the markets in light of these technological developments”, it adds.
Comments on the report are due by October 10, and after analyzing the responses it receives, IOSCO plans to issue a final report.