TORONTO, Dec. 12, 2012 /CNW/ - The Investment Industry Regulatory
Organization of Canada (IIROC) today published the first two phases of
a comprehensive report it has undertaken on trading activity related to high-frequency trading
(HFT) in the Canadian equity markets.
The High Order-to-Trade (HOT) Study is part of an ongoing analysis,
which when completed, will help Canadian and global regulators and
market participants better understand the nature and impact of HFT and
"This study leverages the rich set of consolidated regulatory data from
IIROC's real-time multi-market surveillance technology," said Susan
Wolburgh Jenah, IIROC's President and Chief Executive Officer. "The
study supports IIROC's mandate to foster fair and efficient markets and
bolster investor confidence in their integrity."
"The results of this study will help to inform IIROC's work with other
Canadian regulators to determine the most appropriate response in the
context of global regulatory developments."
The HOT Study objectively identifies a study group of traders and offers
a detailed, statistical analysis of their activity. The study focuses
on the activity of traders who were responsible for a high number of
orders, compared to the number of trades they actually completed
between August 1, 2011 and October 31, 2011 on Canadian equity markets.
The third phase of the study will assess the impact of HFT and related
activity on Canadian market quality and integrity from multiple
perspectives, such as liquidity, price formation, volatility and
overall market confidence. To assist in the third phase, IIROC has
issued for comment a Request for Assistance for a 30-day period to obtain feedback from all interested
The HOT Study found that 11% of all traders were HOT traders and that
this group accounted for 22% of the total share volume traded in Canada
and 94% of order messages. The study also found that HOT traders were
responsible for 36% of Canadian share volume traded in US inter-listed
The research will complement other initiatives already adopted by IIROC
and the Canadian Securities Administrators to govern electronic
trading. Examples include revised electronic trading rules and
guidance, proposed third-party electronic access rules and guidance,
and proposed guidance on manipulative and deceptive trading.
IIROC Notice - Provisions Respecting Electronic Trading, December 7, 2012
IIROC Notice - Guidance Respecting Electronic Trading, December 7, 2012
IIROC Notice - Proposed Provisions Respecting Third-Party Electronic Access to
Marketplaces, October 25, 2012
IIROC Notice - Proposed Guidance Respecting Third-Party Electronic Access to
Marketplaces, October 25, 2012
IIROC Notice - Proposed Guidance on Certain Manipulative and Deceptive Trading
Practices, July 17, 2012
The HOT Study
Backgrounder and Highlights
About IIROC and the Study
IIROC oversees all Canadian equity trading under a single set of rules.
Through its Surveillance Technology Enhancement Program (STEP), IIROC
is able to effectively conduct surveillance of all equity markets on an
intra- and inter-market basis.
As a result, IIROC has a rich repository of regulatory market data
consisting of all orders and trades executed on all national equity
markets. We are using this data to help us analyze and understand
trading patterns in the Canadian equity markets.
In 2011, IIROC created an in-house Analytics team dedicated to proactive
and reactive market analysis to inform policy decision-making. The
team began its preliminary work on Phase I of the study in late 2011
and the statistical analysis for Phase II was initiated in Spring 2012.
Preliminary results from this analysis were presented at the joint
IIROC/OSC Market Structure Conference in June 2012 and made available
on IIROC's web site.
There is no universally accepted definition of HFT.
The HOT Study does not attempt to define HFT. Rather, IIROC
statistically identified an outlier group of trader user IDs with a
high order-to-trade ratio (one of the key characteristics commonly
associated with HFT activity) to establish the study group (the HOT
User Group).The HOT User Group encompasses a wide range of participant
types including clients who directly trade electronically on the
markets through a Direct Market Access (DMA) arrangement with a
Canadian dealer, dealers engaging in proprietary trading, dealers
trading on behalf of their clients, and dealers engaging in specialist
trading/market making for Exchange Traded Funds and Notes (ETFs/ETNs)
and other listed securities.
Using the data to determine the study group and drive the analysis
allowed us to view all types of trading activity in an unbiased manner.
The study covers the prevalence, activity and characteristics of HOT
traders. It includes all trading activity on exchanges and most
alternative trading systems in Canada in the period studied (August 1,
2011 to October 31, 2011).
During the study period
Share volume, value and trades all declined, particularly in October
2011.Canadian activity in US inter-listed securities represented 23 %
of volume, 59 % of value and 55 % of trades.
Canadian activity in S&P TSX 60 securities represented 27 % of volume,
59 % of value and 49 % of trades.
5 % of all trading in Canada was dark trading (including dark markets
and order types).
Key Findings of Phases I and II -- Trading by the Study Group
represent 11% of User IDs
account for 22% of trading volume, 32% of dollar value, 42% of trades
and 94% of all order messages sent
trade 36% of all Canadian share volume traded in US inter-listed
trade 60% of all Canadian trading in ETFs and ETNs
HOT users trade:larger percentage of total dark activity than displayed
anonymously more often than other market participants
passively approximately 66% of the time
over 90% of their activity through seven IIROC Dealer Members
23% of their volume within the same broker1 - generally more than retail users and less than other users (excluding
predominantly liquid TSX-listed securities priced over $1.00
more in TSX 60 Index securities than in other TSX-listed securities
primarily outside of the Opening or Market on Close trading sessions
HOT Users earned $250,000 more per day in rebates than they paid in fees2. All other participants earned more rebates than HOT Users; however
these other participants paid $462,000 more per day in fees than they
earned in rebates2.
40% of HOT Users were identified as DMA (as opposed to non-DMA).
HOT DMA Users:
were responsible for the majority of trading by all HOT Users
that were categorized as "Fast" (44% of HOT DMA Users) were responsible
for 91% of HOT DMA Users' share volume
have lower order-to-trade ratios when compared with non-DMA HOT Users
Average order-to-trade ratio is higher in ETF trading for all HOT Users,
but particularly for the non-DMA groups.
By all measures, HOT clients (DMA and non-DMA) are more active in common
shares and HOT non-DMA (inventory and other) are more active in
IIROC is the national self-regulatory organization which oversees all
investment dealers and trading activity on debt and equity marketplaces
in Canada. Created in 2008 through the consolidation of the Investment
Dealers Association of Canada and Market Regulation Services Inc.,
IIROC sets high quality regulatory and investment industry standards,
protects investors and strengthens market integrity while maintaining
efficient and competitive capital markets.
IIROC carries out its regulatory responsibilities through setting and
enforcing rules regarding the proficiency, business and financial
conduct of dealer firms and their registered employees and through
setting and enforcing market integrity rules regarding trading activity
on Canadian equity marketplaces.
1 Same-broker trading encompasses both intentional and unintentional
2 Over the study period for the securities included in the trading fee
SOURCE: Investment Industry Regulatory Organization of Canada (IIROC) - General News
For further information:
Vice President, Public Affairs