IIROC releases statistical analysis of high frequency traders

January 10, 2013

Last month, the Investment Industry Regulatory Organization of Canada published the first two phases of a study into high-frequency trading (HFT) in Canadian equity markets. The report, which provides a statistical analysis of the trading activity of a study group of traders with relatively high order-to-trade (HOT) ratios between August 1 and October 31, 2011, is intended to assist regulators in determining the most appropriate response to the growth of HFT over the last few years.

Ultimately, the report found that 11% of all traders during the study period were HOT traders and that this group accounted for 22% of the total share volume, 32% of dollar value and 42% of all trades. Among other things, the study also found that the HOT group, which traded predominantly in TSX-listed securities trading between $1 and $5, was responsible for a greater percentage of dark activity than lit, a large number of orders cancelled in comparison to trades executed and used the Anonymous marker more often than other market participants.

The third part of the study is intended to assess the impact of HFT activity with respect to market quality and integrity. Concurrent with the release of its report, IIROC also published a proposed request for assistance, which includes several questions IIROC seeks to address, from those with demonstrated expertise in the area of equity market structure. According to IIROC, the work of outside experts will supplement the internal analysis being undertaken by the organization.

Comments on the proposed request for assistance will be accepted until January 11, 2013. For more information, see IIROC Notice 12-0374.

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