Board of the International Organisation of Securities Commissions (IOSCO) has published a final report that makes recommendations to help market authorities address the technological challenges facing effective market surveillance.
An effective surveillance regime is needed to ensure that trading in a given market is fair and orderly, and that market authorities have the ability to detect or uncover market abuse. But in recent years, technological developments in securities markets render it increasingly difficult to achieve these goals.
The IOSCO final report titled “technological challenges to effective market surveillance: issues and regulatory tools” 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.
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In 2010, the G20 asked IOSCO to develop recommendations to promote market integrity and efficiency, and mitigate the risks posed to the financial system by the latest technological developments. In response, IOSCO published in October 2011 the report on Regulatory Issues Raised by the Impact of Technological Changes on Market Integrity and Efficiency. In August 2012, it issued the consultation report on Technological Challenges to Effective Market Surveillance: Issues and Regulatory Tools. The report published today intends to complete the G20 mandate.
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.
