On 20 October, IOSCO published its final report on regulatory issues raised by the impact of technological changes (including high-frequency trading and algorithmic trading) on market integrity and efficiency. The report contains a number of recommendations to assist securities markets regulators in mitigating potential risks, for example:
- Regulators should monitor novel forms or variations of market abuse that may arise as a result of technological developments, and take action as necessary. The arrangements and capabilities for the continuous monitoring of trading should also be reviewed to ensure they remain effective.
- Regulators should seek to ensure that trading venues have in place suitable trading control mechanisms to deal with volatile market conditions. Trading systems and algorithms should be robust and flexible so that they can deal with, and adjust to, evolving market conditions.
- Regulators should require trading venue operators to provide fair, transparent and non-discriminatory access to their markets (and associated products and services).
- The order flow of trading participants must be subject to appropriate controls (including automated pre-trade controls). Regulators should also identify risks arising from unregulated members and participants of trading venues.
- Regulators should continue to assess the impact of high-frequency and algorithmic trading on market integrity and efficiency. There should be suitable measures to mitigate risks, including risks to price formation or market stability.