IOSCO Identifies Concerns on Implementation of Market Surveillance Recommendations

The International Organization of Securities Commissions ("IOSCO") reviewed the implementation of its 2013 recommendations to help market authorities address the technological challenges facing effective market surveillance and identified areas of concern.

In its Thematic Review, IOSCO assessed the consistency of outcomes arising from the adoption of eight recommendations outlined in its 2013 Report, Technological Challenges to Effective Market Surveillance: Issues and Regulatory Tools. (See related coverage.) In the Review, which was based on responses from 34 jurisdictions, IOSCO analyzed legislative, regulatory and practical measures in place as of December 2023.

IOSCO identified the following key findings and issues of concern:

On Regulatory Capabilities. IOSCO found that most jurisdictions have implemented measures to monitor trading venues and detect market abuse. However, it identified seven concerns:

• Nineteen jurisdictions "have no formal or legal requirements" to identify transactions based on algorithmic execution.
• Thirteen jurisdictions lack automated surveillance for products traded across multiple venues, making monitoring more challenging.
• Ten jurisdictions reported limitations in processing the large volumes of data generated by high-frequency trading.
• Six jurisdictions do not conduct regular "testing or recalibration of automated surveillance systems," risking inefficiencies in detecting market abuse.
• Six jurisdictions with multiple trading venues cannot analyze order and trade data on an integrated basis, hampering market abuse detection.
• Five jurisdictions reported gaps in their ability to "monitor or supervise all marketplaces."
• Three jurisdictions cited insufficient funding and resources for market surveillance.

On Surveillance Capabilities. IOSCO found that most jurisdictions have updated their surveillance capabilities in response to market developments "with most of the participants reporting that markets have undergone significant developments in the past 5 years such as cross-market trading, volume and range of products traded, trading methods, and market technology." However, five jurisdictions lack formal requirements or evidence of conducting effective reviews.

On Access to Data. While all jurisdictions have legal authority to collect trading data, IOSCO found that, of the 25 jurisdictions that lack a Central Reporting Point, 15 have not adopted other measures to ease the collection or comparison of trade data across multiple trading venues. IOSCO noted this is mainly an issue of concern for those jurisdictions with multiple trading venues.

On Customer Identification. IOSCO emphasized the importance of associating customers and market participants with orders and transactions. Four jurisdictions reported difficulties linking this information across multiple markets.

On Data Format. While most jurisdictions have legally enforceable data format requirements, five respondents cited practical difficulties in reconstructing and analyzing order books due to data quality issues.

On Data Protection. IOSCO found that all jurisdictions have taken significant measures to safeguard market surveillance data. No issues of concern were identified.

On Synchronization of Business Clocks. In more complex markets with multiple trading venues, most jurisdictions have implemented requirements for business clock synchronization. No issues of concern were identified.

On Cross-Border Surveillance. Most jurisdictions have not mapped their cross-border surveillance capabilities, raising concerns about detecting misconduct in global markets. IOSCO urged authorities to evaluate these capabilities to mitigate risks.