New research commissioned by the Investment Industry Regulatory Organization of Canada (IIROC) will examine the phenomenon of so-called “phantom liquidity”, as part of the regulator’s ongoing study into the impact of high-frequency trading (HFT).

In the latest phase of its extensive original research into HFT, IIROC has been tapping teams of academics to utilize data it has collected to get a better understanding of the effects of HFT on market quality. The regulator named the first two research teams back in April.

On Tuesday, it added a third team, which is comprised of two professors from universities in the Chicago area — Robert Korajczyk, professor of finance at the Kellogg School of Management, Northwestern University; and, Dermot Murphy, assistant professor of finance at the University of Illinois at Chicago.

IIROC says that the pair will examine the role of HFTs as de facto “market makers” in providing liquidity during periods of market stress, and how that compares to the liquidity offered by designated market makers and other traders during these periods. One of the central issues in the debate over the merits of HFT is whether these traders provide genuine liquidity and bolster market stability, or if their contributions disappear during times of market stress, which is when liquidity is particularly valuable.

“We believe it’s important to address identified regulatory concerns relating to HFT using empirical data and objective study to better understand its impact on market integrity and quality, as well as overall investor confidence,” said Susan Wolburgh Jenah, IIROC president and CEO. “This research, combined with IIROC’s ongoing work, will help to inform any further policy making or regulatory interventions.”

Of the previously-announced projects, one is to focus on the impact of HFT in the provision of cross-market liquidity, risk management and information transmission, in an effort to understand if HFT firms are integrating markets, and whether or not their activities are beneficial; the other, is to examine the effects of short-selling by HFTs and other traders on market liquidity, stability, price efficiency, and price discovery on the Canadian markets.

IIROC expects to have this research completed by the end of 2014.