20 October 2011

IOSCO publishes recommendations on market integrity

The report contains recommendations aimed at promoting market integrity and efficiency and to mitigate the risks posed to the financial system by the latest technological developments, including high frequency and algorithmic trading.

The report analyses the most significant technological developments that have arisen in financial markets in recent years and their impact on market integrity and efficiency, and sets out recommendations to assist securities markets regulators in mitigating these effects. These are designed to:

• help regulators to identify the practical impact that technological developments have had and the regulatory issues to which they may give rise;
• promote a consistent approach amongst global regulators to the latest technological developments; and
• mitigate the risk that technological change may pose to the integrity and efficiency of financial markets.

The recommendations were developed in response to the G20 Leaders' request in November 2010 that IOSCO should “develop recommendations to promote markets’ integrity and efficiency to mitigate the risks posed to the financial system by the latest technological developments”.

Masamichi Kono, Chairman of IOSCO’s Technical Committee, said: “Markets are evolving rapidly and it is important for regulators not only to monitor developments in technology and market structure, but also to continue to assess the impact of these changes on market integrity and efficiency and to address any risks identified. I welcome the G20 Finance Ministers' and Central Bank Governors' recent endorsement of this report's recommendations, whose implementation will assist regulators in identifying what impact developments such as high frequency and algorithmic trading have on the markets they oversee, will promote a globally-consistent approach by regulators in addressing these issues and contribute to regulators' ability to mitigate the risks that these activities may pose to the integrity and efficiency of global capital markets.”

“The G20 Finance Ministers and Governors have asked for further work by IOSCO by mid-2012 on the subject. IOSCO will focus upon such issues as development of recommendations for market surveillance and an analysis of the evolving new market structure in its next stage of work. It is also noted that, in addition to the above report, a broad range of work has already been completed by IOSCO in relation to market integrity and efficiency, particularly through the development of recommendations and principles in the areas of short selling, structured finance products, direct electronic access, OTC derivatives and dark liquidity. The implementation of these principles, alongside today’s recommendations, would be key in achieving the G20's objectives.”

Full report

© IOSCO