One-fifth of all Canadian share volume is high-frequency trading, says the nation’s biggest regulator.
And such traders produce 94 percent of all order message traffic and account for 36 percent of all volume in U.S. inter-listed securities, according to a study by the Investment Industry Regulatory Organization of Canada.
The study is the first of two parts of a comprehensive look IIROC is taking at high-speed trading activity in Canadian equity markets. The research is part of an ongoing analysis of high-frequency trading, the regulator said.
The study does not attempt to define high-frequency trading, IIROC said. Rather, the regulator statistically identified firms with high order-to-trade ratios, an attribute of high-frequency trading. It calls these traders High Order-to-Cancel or HOT traders. HOT traders exhibit similar key characteristics commonly associated with HFT activity and is how the regulator is identifying and studying HFT at the present time.
http://www.iiroc.ca/Documents/2012/d37e064b-7249-400f-9d10-46700670718f_en.pdf
Compared to the U.S., where upwards of 50 percent to 60 percent of trades are attributed to HFT, the 20 percent attributed to HFT in Canada is small. But it still bears watching, according to IIROC.
“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, in a release. “The study supports IIROC’s mandate to foster fair and efficient markets and bolster investor confidence in their integrity.”
IRROC also found:
- HOT users trade more in the dark than in lit markets.
- HOT traders trade anonymously more often than other market participants.
- Ninety percent of their trades were executed through seven IIROC dealer members.
- Twenty-three percent of their volume was executed within the same broker – generally more than retail users and less than other users, excluding retail.
- HOT trades are active in predominately liquid TSX-listed securities priced over C$1.00.
HOT traders encompass a wide range of participant types including clients who directly trade electronically on the markets through a direct market access 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 and other listed securities.
The study focused on trading completed between Aug. 2011 and Oct., 2011 on Canadian equity markets. Trade and message traffic data came from Canada’s public exchanges as well as from most of its alternative trading systems.
