Market Surveillance/Monitoring for Unfair Transactions

3. Market Surveillance and Compliance Procedure

Update : Feb. 29, 2008

3. Market Surveillance and Compliance Procedure

In order to gain an understanding of the movements of stocks that will be the target of surveillance, the department analyzes the initial movements of the stocks and, in cases where there is a possibility of an unfair trade, the department conducts more detailed market surveillance examinations.

Although the process is flexible and can be adapted based on the conditions that arise, most cases follow the steps below.

Understanding Trading Conditions Based on Market Surveillance Examinations

The department first establishes parameters for the "examination time period" based on what set period of time it will evaluate trades of the stock under examination. The department then evaluates all the company information released as official announcements within the designated time period, as well as the documents meeting the standards of Market Surveillance and Compliance department. It also analyzes prices, trading volume, and the methodology of the traders, etc. Whenever necessary, the department asks for cooperation from listed companies (of the target security) to obtain a more comprehensive idea of the process related to company's handling of information, beginning with its origins and ending in eventual official publication.

Once the "examination period" has been decided upon, next, in order to determine who conducted the trades during the specified time, hearings are conducted with trading participants over the phone and the department requires trading participants to submit a written report about its trading conditions.

This written report contains information which is used to conduct a more thorough investigation. The report includes the names of persons who conducted the trades, their addresses, the dates the trade were conducted, the prices, the number of trades, whether it was a purchase or sale, and the name of the branch which handled the transaction. Then the information collected at the hearings and the details from the report are assembled in one file and the department analyzes the investor trading patterns within the examination period.

Questioning Related to the Details of the Trades

After it finishes the analysis of the trading patterns based on the submitted written report on trading conditions, the Market Surveillance and Compliance Department then deals with any issues related to trades by trading participants or consigners which require further clarification or more detailed information. To clarify all the facts in these cases, the department requires the trading participant to submit information about the details and documents related to the consigners accounts, the trading conditions of other stocks, and the incentives for trades of the stock under examination, etc.

Furthermore, in order to conduct a complete and thorough examination of the TSE's market conditions, the department also uses detailed data about the conditions when the order was placed up until it was executed.

Analysis Based on Collected Information

Using all of the information collected in the market surveillance and compliance procedural hearings, trading condition reports and documents, and insider lists, the department uses a variety of methods of analysis to establish a complete picture of the facts and details related to the examination period.

Then, the department decides whether there were any violations of the law or of TSE rules and regulations, or if there was the threat of such an action occurring. It also concludes whether, even if an action was not a violation, it has the potential to become one in the future. Finally, it determines whether or not there was any negligence, etc. related to the incident.