Welcome!

News Feed Item

Next stage to study impact - IIROC publishes study of High Order-to-Trade (HOT) activity on Canada's equity markets

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 related trading.

"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 stakeholders.

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 securities.

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.

Related Documents:

***

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

  • HOT traders
    • 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 securities
    • trade 60% of all Canadian trading in ETFs and ETNs
  • HOT users trade:larger percentage of total dark activity than displayed market activity
    • 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 retail)
    • 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 ETFs/ETNs.

***

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 crosses.
2 Over the study period for the securities included in the trading fee sample.

SOURCE Investment Industry Regulatory Organization of Canada (IIROC) - General News

More Stories By PR Newswire

Copyright © 2007 PR Newswire. All rights reserved. Republication or redistribution of PRNewswire content is expressly prohibited without the prior written consent of PRNewswire. PRNewswire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Latest Stories
We’ve worked with dozens of early adopters across numerous industries and will debunk common misperceptions, which starts with understanding that many of the connected products we’ll use over the next 5 years are already products, they’re just not yet connected. With an IoT product, time-in-market provides much more essential feedback than ever before. Innovation comes from what you do with the data that the connected product provides in order to enhance the customer experience and optimize busi...
In his session at 18th Cloud Expo, Sagi Brody, Chief Technology Officer at Webair Internet Development Inc., will focus on real world deployments of DDoS mitigation strategies in every layer of the network. He will give an overview of methods to prevent these attacks and best practices on how to provide protection in complex cloud platforms. He will also outline what we have found in our experience managing and running thousands of Linux and Unix managed service platforms and what specifically c...
In his session at @ThingsExpo, Chris Klein, CEO and Co-founder of Rachio, will discuss next generation communities that are using IoT to create more sustainable, intelligent communities. One example is Sterling Ranch, a 10,000 home development that – with the help of Siemens – will integrate IoT technology into the community to provide residents with energy and water savings as well as intelligent security. Everything from stop lights to sprinkler systems to building infrastructures will run ef...
Redis is not only the fastest database, but it has become the most popular among the new wave of applications running in containers. Redis speeds up just about every data interaction between your users or operational systems. In his session at 18th Cloud Expo, Dave Nielsen, Developer Relations at Redis Labs, will shares the functions and data structures used to solve everyday use cases that are driving Redis' popularity.
Many private cloud projects were built to deliver self-service access to development and test resources. While those clouds delivered faster access to resources, they lacked visibility, control and security needed for production deployments. In their session at 18th Cloud Expo, Steve Anderson, Product Manager at BMC Software, and Rick Lefort, Principal Technical Marketing Consultant at BMC Software, will discuss how a cloud designed for production operations not only helps accelerate developer...
Manufacturers are embracing the Industrial Internet the same way consumers are leveraging Fitbits – to improve overall health and wellness. Both can provide consistent measurement, visibility, and suggest performance improvements customized to help reach goals. Fitbit users can view real-time data and make adjustments to increase their activity. In his session at @ThingsExpo, Mark Bernardo Professional Services Leader, Americas, at GE Digital, will discuss how leveraging the Industrial Interne...
The increasing popularity of the Internet of Things necessitates that our physical and cognitive relationship with wearable technology will change rapidly in the near future. This advent means logging has become a thing of the past. Before, it was on us to track our own data, but now that data is automatically available. What does this mean for mHealth and the "connected" body? In her session at @ThingsExpo, Lisa Calkins, CEO and co-founder of Amadeus Consulting, will discuss the impact of wea...
Whether your IoT service is connecting cars, homes, appliances, wearable, cameras or other devices, one question hangs in the balance – how do you actually make money from this service? The ability to turn your IoT service into profit requires the ability to create a monetization strategy that is flexible, scalable and working for you in real-time. It must be a transparent, smoothly implemented strategy that all stakeholders – from customers to the board – will be able to understand and comprehe...
Struggling to keep up with increasing application demand? Learn how Platform as a Service (PaaS) can streamline application development processes and make resource management easy.
Increasing IoT connectivity is forcing enterprises to find elegant solutions to organize and visualize all incoming data from these connected devices with re-configurable dashboard widgets to effectively allow rapid decision-making for everything from immediate actions in tactical situations to strategic analysis and reporting. In his session at 18th Cloud Expo, Shikhir Singh, Senior Developer Relations Manager at Sencha, will discuss how to create HTML5 dashboards that interact with IoT devic...
Up until last year, enterprises that were looking into cloud services usually undertook a long-term pilot with one of the large cloud providers, running test and dev workloads in the cloud. With cloud’s transition to mainstream adoption in 2015, and with enterprises migrating more and more workloads into the cloud and in between public and private environments, the single-provider approach must be revisited. In his session at 18th Cloud Expo, Yoav Mor, multi-cloud solution evangelist at Cloudy...
Artificial Intelligence has the potential to massively disrupt IoT. In his session at 18th Cloud Expo, AJ Abdallat, CEO of Beyond AI, will discuss what the five main drivers are in Artificial Intelligence that could shape the future of the Internet of Things. AJ Abdallat is CEO of Beyond AI. He has over 20 years of management experience in the fields of artificial intelligence, sensors, instruments, devices and software for telecommunications, life sciences, environmental monitoring, process...
The demand for organizations to expand their infrastructure to multiple IT environments like the cloud, on-premise, mobile, bring your own device (BYOD) and the Internet of Things (IoT) continues to grow. As this hybrid infrastructure increases, the challenge to monitor the security of these systems increases in volume and complexity. In his session at 18th Cloud Expo, Stephen Coty, Chief Security Evangelist at Alert Logic, will show how properly configured and managed security architecture can...
Unless you don’t use the internet, don’t live in California, or haven’t been paying attention to the recent news… you should be aware that self-driving cars are on their way to becoming a reality. I have seen them – they are real. If you believe in the future reality of self-driving cars, then continue reading on. If you don’t believe in the future possibilities, then I am not sure what to do to convince you other than discuss the very real changes that will roll out with the consumer producti...
A critical component of any IoT project is the back-end systems that capture data from remote IoT devices and structure it in a way to answer useful questions. Traditional data warehouse and analytical systems are mature technologies that can be used to handle large data sets, but they are not well suited to many IoT-scale products and the need for real-time insights. At Fuze, we have developed a backend platform as part of our mobility-oriented cloud service that uses Big Data-based approache...