Corey Garriott is a Principal Researcher in the Financial Markets Department at the Bank of Canada. He is a researcher in market microstructure whose primary research interests center on the liquidity impact of new regulation and technology. He has worked on banking regulation, high-frequency trading, decimalization and order-flow segmentation. Corey Garriott received his PhD in economics from UCLA.
Staff analytical notes
Bond dealers have traditionally kept bonds in an inventory until clients buy them. But now, dealers have another way to access bonds for their clients: the exchange-traded fund. We discuss this new way to manage bond dealing and what it might mean for bond markets.
This analytical note assesses the prevalence of liquidity provision by institutional investors in Canadian bonds. We find that the practice is not prevalent in Canada. Customer liquidity provision is more prevalent for less liquid bonds, on days when liquidity is already expensive or when there are larger trading volumes. In our interpretation, Canadian dealers draw on customer liquidity as a supplementary source of liquidity and only when necessary, given its cost.
In this note, we find that market participants react to an unexpected change in the tone of Canadian monetary policy statements. When the market perceives that the Bank of Canada plans to tighten (or alternatively, loosen) the monetary policy earlier than previously expected, the Canadian dollar appreciates (or depreciates) and long-term Government of Canada bond yields increase (or decrease). The tone of a statement is particularly relevant to the market when the policy rate has been unchanged for some time.
Technology, risk tolerance and regulation may influence dealers to reduce their trading as principals (using their own balance sheets for sales and purchases of securities) in favour of agency trading (matching client trades).
Staff discussion papers
This paper presents four blue-sky ideas for lowering the cost of the Government of Canada’s debt without increasing the debt’s risk profile. We argue that each idea would improve the secondary-market liquidity of government debt, thereby increasing the demand for government bonds and thus lowering their cost at issuance.
This discussion paper is the third in the Financial Markets Department’s series on the structure of Canadian financial markets. These papers are called “ecologies” because they study the interactions among market participants, infrastructures, regulations and the terms of the traded contract itself.
This is the first of the Financial Markets Department’s descriptions of Canadian financial industrial organization. The document discusses the organization of the repurchase-agreement (repo) market in Canada.
Staff working papers
Investors who trade based on good research are said to be the backbone of stock markets: They conduct research to discover the value of stocks and, through their trading, guide financial prices to reflect true value. What can make their job difficult is that high-speed, short-term traders could use machine learning and other technologies to infer when informed investors are trading.
Using bond futures data, we test whether high-frequency trading (HFT) is engaging in back running, a trading strategy that can create costs for financial institutions. We reject the hypothesis of back running and find instead that HFT mildly improves trading costs for institutions.
We model how securities dealers respond to regulations on leverage, position and liquidity such as those imposed by the Basel III framework. We show that while asset prices exhibit greater price impact, bid-ask spreads do not change and trading volumes may even increase.
We document the outcome of an options decimalization pilot on Canada’s derivatives exchange. Decimalization improves measures of liquidity and price efficiency. The impact differs by the moneyness of an option and is greatest for out-of-the-money options.
In August 2012, the New York Stock Exchange launched the Retail Liquidity Program (RLP), a trading facility that enables participating organizations to quote dark limit orders executable only by retail traders.
We analyze trading dynamics as successive high-frequency trading (HFT) firms begin to trade stocks in an equity market. Entrants compete with incumbents for volume, and there is crowding out.
Bank of Canada Review articles
November 14, 2013
Changes in technology and regulation have resulted in an increasing number of trading venues in equity markets in Canada. New trading platforms have intensified price competition and have encouraged innovation, and they do not appear to have segmented trade. But the increasingly complex market structure has necessitated investments in expensive technology and has introduced new operational risks. Regulatory responses should be carefully adapted to retain the competition and innovation associated with this market fragmentation.
Financial System Review articles
June 9, 2016
This report investigates how the markets for repurchase agreements and securities-lending agreements support the liquidity of Canadian bond markets. It also discusses how recent regulatory changes, as well as low interest rates and settlement failures, are potentially affecting securities-financing markets and, as a result, bond market liquidity.