FR/03/2025 Thematic Review on Technological Challenges to Effective Market Surveillance Issues and Regulatory Tools

Thematic Review onTechnological Challenges to EffectiveMarket Surveillance Issues andRegulatory Tools The Board of theInternational Organization of Securities Commissions The International Organization of Securities Commissions website © International Organization of Securities Commissions 2025.All rights reserved. Brief excerpts may be reproduced or translatedprovided the source is stated. Table of Contents Chapter 1 –Executive Summary4 Chapter 2 –Background Chapter 3 –Objectives, Methodology, and Review Team11 Chapter 4 –Participating Jurisdictions13 Chapter 5 –Key Findings15 Chapter 6 –Conclusion and Recommendations Annexure 1 – Assessment Methodology and Questionnaire Annexure 2 – List of Respondents 52 Annexure 3 – Participating Jurisdictions’ Market Statistics54 Chapter 1 –Executive Summary This Report presents the observations and findings of the thematic review(“Review”) by the International Organization of Securities Commissions (IOSCO)of the recommendations from the 2013 IOSCO Report Technological Challengesto Effective Market Surveillance: Issues and Regulatory Tools (“the MarketSurveillance Report” or “TCEMS Report” or “the Report”)1. This Review aims to assess the consistency of outcomes arising from theimplementationby Market Authorities (“MAs”) of the eight recommendations oftheTCEMSReport. 35 responses were received from 34 IOSCO memberjurisdictions2who participated in the Review3. The Review examined the legislative,regulatory, and practical measures put in place by participants as of December2023. A review team representing six IOSCO member jurisdictions and the IOSCOSecretariat (“Review Team” or “RT”) developed and applied a methodology toanalyze responses and highlightkey findings, as well as issues of concern foreach Recommendation. Chapter2 of this report presents some background information on the TCEMSReport. Chapter 3 describesthe Review process and the Methodology that wasused by the Review Team. Chapter 4 describes participating jurisdictions andcategorization of market complexity.Chapter 5 sets out thekey findingsandissues of concern. Lastly, the report is concluded in Chapter 6 with somerecommendations. A summary of the main Key Findings is listed below: Recommendation 1 – Regulatory Capabilities “MAs should have the organizational and technical capabilities to monitoreffectively the Trading Venues they supervise, including the ability to identifymarket abuse and activities that may impact the fairness and orderliness oftrading on such venues.” •It was found that most jurisdictions have implemented Recommendation 1.•7 issues of concernwere identified under this Recommendation: ̶Periodic testing and recalibration of automated systems is essential inorder to ensure that market surveillance systems remain effective in theface of changing marketconditions and trading behavior. 6 jurisdictionsreported that they do not have regular testing or recalibration of theirautomated systems. ̶Trading has become more dispersed across multiple trading venues.Automated market surveillance for products traded on multiple venuesallows for moreeffectivemonitoring. However, 13 jurisdictions do not haveautomated surveillance of products traded on multiple venues, thus makingit more challenging to monitor.̶The inability to analyze order and trade information on an integrated basisacross multiple trading venues is an issue of concern. This is crucial foridentifying market abuse, which involves manipulating orders, modifications,cancellations, and transactions to deceitfully portray market activity.6jurisdictions with multiple trading venues are not able to analyze order andtrade information across their venues. ̶Being able to monitor or supervise all marketplaces or trading venues iscritical, given the growth of trading across various platforms and assets.Not being able to do so is an issue of concern. 5 jurisdictions have reportednot monitoring or supervising some marketplaces or trading venues. ̶Three jurisdictions reported that they do not have adequate funding andsufficient resources dedicated to market surveillance.̶Being able to identify whether trading conduct (orders or trades) is drivenby algorithms is important for the investigation and analysis of impropermarket conduct.19 jurisdictions have no formal or legal requirements forthe identification of transactions (or orders) based on algorithmicexecution.̶10MAs reported that there were limitations on their capacity to handleand/or analyze large data volumes generated by high frequency trading(“HFT”). Recommendation 2: Review of Surveillance Capabilities “MAsshould regularly review and update as appropriate their surveillancecapabilities, including systems, tools, and surveillance staff skills, particularly withrespect to technological advances”. •It was found that the most jurisdictions have implemented Recommendation 2,with most of the participants reportingthat markets have undergonesignificant developments in the pa