NEW YORK & LONDON -- (BUSINESS WIRE) -- Expanding its research and analysis coverage of the Canadian equities markets, TABB Group has published two new research studies, “Canadian HFT Regulations: A Cautious Work in Progress,” and “Canadian Equity Market Structure: Dark Liquidity,” the third in a series following the April 2013 publication of “Canadian Equities Market: 2013 State of the Industry.”
According to Adam Sussman, TABB’s director of research who wrote “Canadian HFT Regulation” with co-author Lida Preyma, Canadian regulators continue to face significant hurdles in their attempts to reconcile the benefits and challenges that accompanied the introduction of competition and high-frequency trading (HFT) in the Canadian equities markets in 2007. Despite the benefit of hindsight and foresight gained from other markets, including the United States, wrestling with these same issues since 2001, high-frequency trading remains a regulatory work-in-progress in Canada.
In this 17-page study with 6 exhibits, TABB explains how the Investment Industry Association of Canada (IIROC) is both facilitating and impeding high-frequency trading strategies as it strives to meet its mandate of “Protecting Investors and Fostering Fair and Efficient Capital Markets across Canada.” The study examines how regulatory changes such as messaging fees and dark pool rules have altered substantially when and where orders are placed, and explores the importance of speed and the implications of regulation and key features unique to the Canadian market structure.
“IIROC has been applauded for taking a data-driven approach to its rule-making rather than following in the footsteps of other global regulatory bodies who seem deadlocked in prescriptive recommendations,” Sussman says. “They’ve invested time to enhance market surveillance and deployed an inclusive approach to deepen analysis of high-frequency trades.” But as Preyma cautions, “the biggest challenge for IIROC going forward will be using its resources effectively. It’s difficult to hire and especially problematic to retain top talent in the quest to stay ahead of fast-paced technological advancements and to try not to solve problems that don’t exist.”
TABB’s “Canadian Equity Market Structure: Dark Liquidity,” a 19-page study with 13 exhibits, which details the regulatory framework of Canadian and US equity market structure, describes the impact of this targeted dark regulation in Canada and highlights major points of contention for internalization, ATS operations and dark volume transparency in lit markets, was written by senior research analyst Sayena Mostowfi.
Ever since IIROC implemented the Universal Market Integrity Rules (UMIR) on October 2012, the dark pool amendments have been a focal point of ongoing debates concerning optimal market structure and the appropriate balance between lit and dark liquidity.
According to Mostowfi, lit and dark marketplaces have gravitated toward customer segmentation in order to attract liquidity and provide better prices and/or larger trade sizes. She believes that Canadian regulators face a difficult task of setting market structure rules and responding to unintended consequences to maintain a delicate balance between order interaction and competition to promote price discovery and market innovation.
“In light of the changes,” she says, “we’re keen to see how the regulators evaluate impact of the dark rules and address concerns about dark liquidity within the lit marketplaces.”
Both studies can be accessed by TABB Group Research Alliance Equity clients and all pre-qualified media at https://www.tabbgroup.com/Login.aspx. For a copy of the Executive Summaries or more information, visit www.tabbgroup.com. To purchase the studies, write to email@example.com.
About TABB Group
With offices in New York and London, TABB is the only research and consulting firm focused exclusively on capital markets, based on the interview-based, “first-person knowledge’ research methodology developed by Larry Tabb. For more information, visit www.tabbgroup.com. In 2010, TABB launched TabbFORUM, the online capital markets community for peer-to-peer opinion and analysis covering current industry issues, tracked daily by 18,000-plus professionals.