High-frequency traders represent 11% of total users who execute trades on the market, but account for a whopping 94% of all orders entered, according to an ongoing Investment Industry Regulatory Organization of Canada (IIROC) study on the impact of high-frequency trading (HFT).
The results were presented at a joint symposium in Toronto on Tuesday sponsored by IIROC and the Ontario Securities Commission on current trends in the Canadian equity market by Victoria Pinnington, IIROC’s vice president of trading review and analysis.
In particular, Pinnington noted that IIROC has examined trading data between August 2011 and October 2011 and looked at the users who executed those trades. The users were then split into two groups; those considered high-frequency traders were determined based on their high order-to-trade ratio (HOT).
A closer look at the numbers reveals that HOT users were responsible for 32% of total trading activity on Canada’s secondary markets, representing 25% of all activity on the Toronto Stock Exchange and 40% of all activity on the Alpha Trading System. In terms of the products they trade, common stocks account for 78% of the products HOT users trade while exchange-traded funds and notes (ETFs and ETNs) make of 21% of their trades. However, HOT users are responsible for 29% of the total value of common stocks traded and a remarkable 60% of all ETFs and ETNs traded.
IIROC is currently working on “Phase II” of the process and it will issue a report this autumn on the factual data it has discovered, Pinnington says. At that point, IIROC will establish a request for proposal for “Phase III” of the study, which, she says, will look at the “impact of HOT user group activity on market quality, using measures such as liquidity, volatility, fairness and integrity,” among others.