On July 13, 2017, Investment Industry Regulatory Organization of Canada (IIROC) announced that it has entered into an agreement to enhance its use of Nasdaq's SMARTS technology for market surveillance. The SMARTS technology employs machine learning and artificial intelligence to enable efficient market surveillance and compliance. IIROC will be using the technology to oversee all securities trading on debt and equity markets across Canada.
The technology claims to provide holistic market surveillance by monitoring up to one billion transactions daily in real time, and integrating and organizing data across multiple asset classes, products, dealer firms and communication channels. IIROC's use of the SMARTS technology is intended to provide the regulator with a snapshot of pertinent information that supports investigations and purports to help ensure compliance with securities regulations and trading rules. This technology can also be used to identify cases of market manipulation, including spoofing.
Systems like SMARTS can be used to flag anomalies and potentially abusive behaviour, enabling a shift of a regulator's focus to preventing crime rather than addressing it in hindsight. As the use of this technology expands, it can be expected to lead to a growing incidence of investigations arising from IIROC's market oversight rather than through customer complaints.
IIROC announced that the enhanced SMARTS system should be fully implemented and operational by the summer of 2018, at which point it will enable quicker responses to possible misconduct and breaches by generating alerts to IIROC in real time.