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Canadian regulators set to tackle electronic trading risks

Traders on CIBC trading floor.

Charla Jones

Demonstrating just how much the trading environment has changed, Canada's patchwork quilt of securities regulators has stuck an agreement on a framework that will govern electronic trading.

The new document, National Instrument 23-103, has been open to public comment and debate for the past year, and is being implemented "to help ensure that marketplace participants and marketplaces manage the risks associated with electronic trading."

Although the debate over the usefulness and integrity of electronic trading algorithms and high frequency traders is still unresolved in the trading community, the regulators felt it was important to create a national framework that governs these trades because no one can deny just how big electronic trading's slice of the market is.

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Not only has a new study by the Investment Industry Regulatory Organization of Canada found that high frequency trading may account for as much as 42 per cent of trading volume, but trading desks all over Bay Street have been adding more algorithmic tools. Everyone knows the world has changed.

A detailed explanation of what is included in the new national instrument can be found here, but some of the key rules include enforcing sound risk management, cracking down on automated order entries and ensuring fair access to each market participant's order and trade information.

Along with the new national instrument, IIROC has proposed amendments to the Universal Market Integrity Rules that implement "supervision and gatekeeper obligations." More details on these can be found here.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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