High-frequency trading subject of study

The Technical Committee of the International Organization of Securities Commissions has published a Consultation Report on Regulatory Issues Raised by the Impact of Technological Changes on Market Integrity and Efficiency (Report), which is aimed at developing recommendations to mitigate the risks posed to the financial system by the latest technological developments, such as high frequency trading. The work is being carried out in response to a G20 Leaders request during the Seoul Summit in 2010.

The Report analyses the most significant technological developments and related micro-structural issues that have arisen in financial markets in recent years, notably high frequency trading, and their impact on market structure, participants’ behaviour, price discovery and formation and also on the availability and accessibility of liquidity. It also considers other micro-structural related topics such as co-location, tick sizes, fee structures, indications of interest etc. and presents an analysis on trading control mechanisms.

The Report consults on those issues raised by technological developments that it has not previously examined, particularly focusing on the impact of high frequency trading, including:

  • the impact of technological developments;
  • risk controls;
  • trading controls;
  • regulatory surveillance capabilities;
  • conflicts of interest;
  • fee structures; and
  • co-location.

Additionally the Report outlines recent standards and recommendations developed by IOSCO in relation to market integrity and efficiency issues, including its recent work on Principles for Dark Liquidity.

The consultation period will close on 12 August, so that a further report can be prepared before the G20 Finance Ministers meet in October. The Technical Committee has also written to the Financial Stability Board outlining the report’s content and its progress on market integrity and efficiency.

In addition to the consultation on the impact of technological changes, IOSCO intends to undertake work designed to address fundamental questions linked to market surveillance and market structure.

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