High-Frequency Trading Helps Canadian Markets, Regulator Says

  • IIROC says HFT has `mostly positive' impact on stock market
  • Study finds speed traders boost liquidity, improve prices

High-frequency trading -- the often-criticized practice of light-speed buying and selling -- has mostly helped the Canadian stock market, according to the regulatory body that oversees dealers who trade the shares.

Firms using the technique boost liquidity and improve prices, and there’s little evidence they take advantage of slower traders, the Investment Industry Regulatory Organization of Canada said in a statement Wednesday after completing a study.

“The results of the study did not reveal any concerns that warranted a regulatory response beyond measures already implemented by IIROC and indicate that the presence of HFT has different, mostly positive impacts on Canadian equity markets and those who invest on those markets,” according to IIROC, which is a self-regulatory organization funded by its members including Canada’s biggest banks and other securities firms.

To critics like author Michael Lewis, high-frequency traders don’t provide reliable liquidity and try to take advantage of firms that haven’t armed themselves with the fastest technology. And Canadian trading platforms have tried to assuage concerns about the practice. TMX Group Ltd. -- which through its ownership of the Toronto Stock Exchange and other markets handles about three quarters of Canadian equity volume -- a year ago announced plans to slow down high-frequency traders on its Alpha Exchange. An upstart exchange run by Aequitas Innovations Inc. has rules and infrastructure designed to blunt HFT practices it deems predatory.

Proponents argue that HFT makes trading cheaper and more efficient for investors.

IIROC addressed what’s probably the strongest allegation critics make against HFT: that other investors are harmed by the practice.

“There is little evidence that HFTs take advantage of slower non-HFTs or front-run non-HFTs. (Front-running occurs when a market participant makes a non-client transaction that may affect a security’s market price before filling a client order for that security.)” according to IIROC.

— With assistance by Doug Alexander

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