IIROC moves ahead on HFT study

Date: Thursday, April 24, 2014
Author: Advisor.ca

IROC has selected two project teams to assess the impact of high frequency trading and related activity on Canadian equity marketplaces.

The work is part of the final phase of IIROC's HFT Study.

The two project teams are comprised of several professors, at educational institutions across North America, who have experience studying and teaching about HFT, algorithmic trading and other market structure issues internationally.

Read: Faceoff: High frequency trading

The first project team is Berkley researcher Terrence Hendershott, University of Washington finance professor Jonathan Brogaard and University of Ontario Institution of Technology business professor Ryan Riordan. They'll focus on the impact of HFT in cross-market liquidity provision, risk management and information transmission. The team will try to better understand if HFT firms are integrating markets and whether or not their activities are beneficial.

Riordan and Wilfrid Laurier University finance professor Andriy Shkilko make up the second project team. They'll focus on the effects of short-selling by HFT and other market participants on market liquidity, stability, price efficiency, and price discovery on Canadian securities markets.

Read: NY attorney general subpoenas 6 HFT firms in probe

"This research, combined with IIROC's ongoing work, will help to inform any further policy making or regulatory interventions," says Susan Wolburgh Jenah, IIROC President and CEO.

These studies are the third phase of IIROC's HFT Study. It follows the publication of the first two phases of the study in December 2012 that objectively identified a study group of traders and offered a detailed statistical analysis of their activity. The teams will have access to secure and masked data for January 1, 2012 to June 30, 2013.

IIROC's request for assistance for the impact study phase generated significant international interest. IIROC selected the two teams after reviewing 19 comprehensive projects submitted by seven respondent groups and negotiating terms to ensure protection and confidentiality of all data. IIROC expects to announce other teams to join in this review in the near future.

Read: Are high-speed traders a threat?

The final phase of the three-part study should be completed by the end of the year.

In 20I3 IIROC issued guidance on manipulative and deceptive trading. Surveillance alerts have been implemented and IIROC is actively monitoring to detect these rule violations.