A new report from the British Columbia Securities Commission (BCSC) finds that concerns about the impact of high-frequency trading (HFT) on the venture market are not supported by data.
The research aimed to examine claims that high-frequency traders (HFTs) cause increased price volatility in venture securities, and short selling activity by HFTs after the release of positive news limits price gains.
Overall, the report concludes, “Our analysis of volatility does not support the hypothesis that HFT trading increases the price volatility of TSXV securities.”
In addition, the report found “no evidence that HFTs increased the ratio of sales from short positions during the news period in 2013. In 2011, there was an increase in the ratio of short-selling activity during these days, but it was not statistically significant and the results were largely attributable to price movements in a single security.”
Concerns about the impact of HFT on the venture market accompany broader concerns about the health of the venture market overall. The TSX Venture Exchange (TSXV) has seen sharp declines in both trading activity, and in its market cap, over the past few years, the BCSC says in a notice published Wednesday. Trading volumes are about half of what they were in the first half of 2012, and the index has fallen to less than a third of its value from its peak in 2012.
In response to those concerns, the TSXV, along with the BCSC, the Alberta Securities Commission (ASC), and the Investment Industry Regulatory Organization of Canada (IIROC) formed a working group, the Public Venture Market Working Group, to examine whether regulation is one of the factors harming the venture markets. The BCSC carried out its research into HFT on behalf of the working group, with the TSXV and IIROC providing data, and staff from the ASC, TSXV, and IIROC supplying input on the research.