There were recently two notable developments with respect to studies documenting high frequency trading in Canadian capital markets. We have summarized these developments in this piece.
First, the results of a study on the impact of high frequency trading (HFT) on securities trading on the TSX Venture Exchange (TSXV) was recently published by the British Columbia Securities Commission (BCSC) and the Alberta Securities Commission (ASC). The study tested two hypotheses: (i) that HFT was increasing the volatility in the share prices of issuers listed on the TSXV that were frequently targeted by HFT in comparison to securities that were not frequently targeted by HFT; and (ii) high frequency traders more frequently sell short, or try to sell short, on a downtick following news than other market participants. The study did not find any evidence to support the first hypothesis and was generally inconclusive as to the second hypothesis. The Public Venture Market Working Group, comprised of the TSXV, the Investment Industry Regulatory Organization of Canada (IIROC), the ASC and the BCSC, conducted the study.
Meanwhile, IIROC and the Capital Markets Institute at the University of Toronto's Rotman School of Management also held a public forum on high frequency trading in Toronto on October 19, 2015. In addition to the study noted above, authors of the following academic papers were hosted as part of a comprehensive review of the impact of HFT and related activity on Canadian equity markets:
-
High Frequency Market Making to Large Institutional
Trades
Dermot Murphy, University of Illinois (co-author Robert Korajczyk, Kellogg School of Management) -
Liquidity Provision and Market Making by
HFTs
Andreas Park, University of Toronto (co-author Katya Malinova, University of Toronto) -
Price Discovery without Trading: Evidence from Limit
Orders
Ryan Riordan,Queen's School of Business (co-authors Jonathon Brogaard, University of Washington & Terrence Hendershott, University of California Berkeley) -
The Impact of the Dark Trading
Rules
Katya Malinova, University of Toronto (co-authors Carole Comerton-Forde, University of Melbourne and Andreas Park, University of Toronto) -
Impact of the Dark Rule
Amendments
Baiju Devani, Director of Analytics, Investment Industry Regulatory Organization of Canada
For further information on the BCSC study, please consult BC Notice 2015/07 and the results of the study. For further information on the forum, please consult IIROC Notice 15-0202 Forum on High Frequency Trading and IIROC’s news release on the forum.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
