July 13, 2017
Enhanced technology to improve IIROC’s oversight of Canada’s capital markets
IIROC News Release
IIROC's market surveillance role
IIROC protects investors and strengthens confidence in the integrity of Canadian debt and equity markets by conducting surveillance to ensure that trading is carried out in accordance with IIROC Universal Market Integrity Rules and applicable provincial securities laws. Under Recognition Orders from the provincial and territorial securities commissions that make up the Canadian Securities Administrators (CSA), IIROC regulates all Canadian equity markets and alternative trading systems, as well as Canada's debt market. IIROC market surveillance works in a number of ways:
- Real-time equity market surveillance: uses a surveillance system which generates real-time alerts for unusual trading activity across all Canadian equity marketplaces. Surveillance officers will investigate these alerts and if deemed necessary, they can intervene using trading halts and resumptions to ensure fair and orderly markets. The officers also manage the triggering of single-stock or market-wide circuit breakers.
- Post-trade review and analysis works to detect potentially manipulative or abusive trading activity. Potential abuses are referred to IIROC's Enforcement division or, if the respondent is outside of IIROC's jurisdiction, to the appropriate provincial or territorial securities commission for further investigation and possible prosecution.
- Post-trade Debt Surveillance: uses alerts generated from trade data reported T+1 by Dealers who trade in debt securities.
IIROC also investigates possible misconduct and breaches of IIROC rules by the firms and individuals it regulates and can take disciplinary action which may result in fines, suspensions and permanent bans or terminations for firms and individuals.
To ensure our surveillance capabilities are coordinated with other jurisdictions, IIROC is a member of the Intermarket Surveillance Group (ISG), which is comprised of 53 exchanges around the world with the mandate to promote effective, cooperative market surveillance among international exchanges.
IIROC's current market surveillance system
In its 2016-2017 fiscal year, IIROC carried out surveillance of nearly 432 million equity trades on five stock exchanges and eight alternative trading systems, plus more than one million bond transactions. To perform this work, IIROC uses Nasdaq SMARTS 6.4, the Equity Data Warehouse and Debt Data Warehouse for market surveillance and investigations of trading in equities and debt products. In July 2017, IIROC announced that it had signed an agreement with Nasdaq to significantly enhance its market surveillance system.
IIROC's new surveillance system – Nasdaq SMARTS
IIROC's enhanced market surveillance system - SMARTS - will allow us to better protect investors through more effective detection of and rapid response to potential market abuses.
SMARTS 7.0 is a state–of-the-art system that will allow IIROC to more easily identify abusive market activity. It will strengthen IIROC's analytical capabilities so that we can identify and respond to evolving market trends more quickly and efficiently. SMARTS will provide IIROC with a holistic overview of trading on both debt and equity markets through one platform. It will support cross-asset, cross-dealer surveillance. It will provide the capability for real time multi-asset monitoring that includes fixed income instruments, multi-product monitoring and multi-dealer monitoring to detect anomalies in trading patterns.
SMARTS will support real-time surveillance for up to one billion daily transactions, plus the capacity to add an additional one billion daily transactions for other securities, as financial markets evolve and new products emerge. SMARTS provides increased agility in responding to potential abuses.
The enhanced system provides a solid foundation for the future evolution of IIROC's market supervision, providing the flexibility to accommodate new asset classes. In the future, this surveillance system will also enhance IIROC's analytical capabilities by supporting better data mining, visualization and reporting. This will make our surveillance more efficient and effective, and provide the foundation for a machine learning approach to surveillance.
IIROC's enhanced market surveillance and analysis capabilities will ensure the integrity of Canada's debt and equity markets, providing investors with more confidence to invest.