Canadian regulator turns to Nasdaq Smarts for market surveillance

Source: Nasdaq

The Investment Industry Regulatory Organization of Canada (IIROC) today announced it has reached an agreement with Nasdaq's Smarts that will enable the regulator to significantly enhance its market surveillance capabilities resulting in increased investor protection.

The agreement follows an extensive and thorough vendor selection process. The system will enable IIROC to use SMARTS's most advanced leading-edge surveillance technology to oversee all securities trading on debt and equity markets across Canada. IIROC carries out this oversight in support of both its mandate and that of the Canadian Securities Administrators to help ensure compliance with its trading rules and applicable provincial and territorial securities regulations.

"Canadian investors need to have confidence that our capital markets operate fairly and with integrity," said IIROC President and CEO Andrew Kriegler. "These enhancements will enable IIROC to more effectively detect and respond to potential market abuses across debt and equity markets. This system will also strengthen IIROC's analytical capabilities so we can identify and respond to emerging market trends in an efficient manner."

The system, which is capable of monitoring up to one billion transactions daily in real time, will support cross-asset surveillance and investigations, as well as allow for quicker detection of trading anomalies across multiple products and dealer firms. It can also accommodate the addition of new asset classes as financial products and markets evolve.

"By allowing us to be more agile and flexible, the system will provide a solid foundation for the evolution of IIROC's market supervision in the years ahead and bring us one step closer to our vision of providing leading-edge market surveillance," said Victoria Pinnington, Senior Vice President, Market Regulation and Policy. "This state-of-the art system offers new tools and approaches including machine learning and artificial intelligence that our team will leverage to more efficiently monitor for abusive behaviour."

The enhanced Nasdaq SMARTS surveillance system, which is expected to be fully implemented by the summer of 2018, holistically examines scenarios across multiple trading venues and asset classes. The system gathers the data required via direct real-time feeds from trading venues, providing visualizations and alerts that distil millions of pieces of data into a snapshot that can efficiently identify potential manipulative and deceptive activity across debt and equity markets.

"By supporting IIROC over the past several years in its rigorous efforts in monitoring and protecting Canada's markets, this has complemented Nasdaq's relentless commitment to leveraging technology to strengthen the integrity of the global capital markets," said Lars Ottersgård, Executive Vice President and Head of Market Technology, Nasdaq. "We look forward to continuing this successful partnership and working with our clients in maintaining a fair, transparent and safe global marketplace and ensuring that firms have the tools to do so as well."

IIROC currently uses an earlier version of Nasdaq SMARTS for market surveillance and investigations to ensure trading is carried out in accordance with IIROC's Universal Market Integrity Rules. In fiscal 2016-2017, IIROC monitored more than 446 million trades on five stock exchanges and eight Equity Alternative Trading Systems, coordinating 1,470 trading halts and 83 cease trade orders and triggering 53 single stock circuit breakers.

Nasdaq provides surveillance technology for 47 marketplaces around the world.

IIROC is the national self-regulatory organization which oversees all investment dealers and their trading activity in Canada's debt and equity markets. IIROC sets high quality regulatory and investment industry standards, protects investors and strengthens market integrity while supporting healthy Canadian capital markets. IIROC carries out its regulatory responsibilities through setting and enforcing rules regarding the proficiency, business and financial conduct of dealer firms and their registered employees and through setting and enforcing market integrity rules regarding trading activity on Canadian debt and equity marketplaces.

Fact Sheet

Enhanced IIROC Market Surveillance Capabilities

July 2017
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.

Increased capacity

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.

Other Benefits

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. 

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