Copyright© JSE Limited 2005 www.jse.co.za

THE NEED FOR TRADE MONITORING IN AFRICA

Bill Urmson

Director: Surveillance

JSE LIMITED

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TRADE MONITORING IN CONTEXT

Exchange - Shopping Centre

Securities - Goods on Offer

Broking firms - Shopkeepers

Investors - Customers

Easy Access - Location

Regulation - Security

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WHAT DO INVESTORS EXPECT OF A TRADING ENVIRONMENT

Liquidity

No queue jumping

Competitive price formation

Comparable levels of price sensitive information

Effective trade monitoring seeks to ensure that these elements are optimally satisfied.

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WHAT TYPES OF ABUSE ARE REGULATORS LOOKING TO IDENTIFY

Wash sales / Pump and Dump

No genuine change of ownership. Misleading regarding volume and/or price.

Front running

Using knowledge of large orders to come to benefit from the likely price movement therefrom.

Price manipulation

Orders designed to achieve a price movement as opposed to achieving the best available trade. Usually timed to coincide with specific dates or times.

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WHAT TYPES OF ABUSE ARE REGULATORS LOOKING TO IDENTIFY

Collusive transactions

Parties arrange a trade in advance and co-operate to process it away from a “fair price”.

Corners/Bear squeezes

Controlling the supply in order to force up prices. Often follows from a trading error.

Insider trading

Misuse of privileged price sensitive information regarding a listed company for gain.

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WHAT TOOLS ASSIST IN REGULATING TRADING

PREVENT MEASURES

Flex market opening and closing times.

Spread the closing value computation for derivative contracts.

Maximise the transparency of trading (but not the parties concerned).

Make it easy for aggrieved parties to complain.

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WHAT TOOLS ASSIST IN REGULATING TRADING

Detect Measures

Regulation must be real-time, which in larger markets means computerised, with alerts.

Must be able to “replay” the market.

Client level (and not just broker level) information gives an extra dimension to regulation.

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PUNISHMENT FOR THE GUILTY!

Rules and legislation must be effective.

Naming and shaming is a great deterrent.

Civil or administrative action can often be much quicker and more effective than criminal.

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Good regulation cannot make your exchange but ineffective regulation can cripple it.