22 April 2013

IOSCO publishes report on technological challenges to market surveillance

This final report provides an overview of current market surveillance regimes and identifies the main challenges that technological developments pose to these regimes. It also makes final recommendations to help market authorities develop the regulatory tools for addressing these challenges, particularly with respect to:

• improving surveillance capabilities on a cross-market and cross-asset basis; and
• making more useful to market authorities the data collected for surveillance purposes.

To help market authorities achieve the two goals of an effective surveillance regime, this report considers new regulatory tools for dealing with the challenges they face, including audit trail or surveillance data that permits the reconstruction of trades and order books; a single reporting point for transactions within a jurisdiction; and unique entity identifiers.

Securities markets have experienced a sweeping transformation in recent years. Rapid technological advances and regulatory developments have produced fundamental changes in the structure of securities markets, the types of market participants, the trading strategies employed, the increase in the speed of trading and the array of products traded.

Securities trading has become more dispersed among exchanges and various other trading venues. The markets have become more competitive, as exchanges and other trading venues compete aggressively for order flow by offering innovative order types, new data products and other services, and through fees or rebates.

Automation can increase the risk of illegal or otherwise inappropriate conduct, because market participants have the ability to trade large volumes of numerous products in just fractions of a second. The speed at which trading occurs affects the ability to monitor markets effectively in the traditional sense. Because trading has become more dispersed across multiple trading centers, it has become more difficult to monitor and trace orders and transactions.

Full report

© IOSCO