Market Surveillance/Monitoring for Unfair Transactions

2. Types of Unfair Trading

Update : Feb. 29, 2008

2. Types of Unfair Trading

The Market Surveillance and Compliance Department closely monitors the market on a daily basis, researching and examining the possibility of unfair trades. The following types of trades are expressly prohibited as unfair trades in the Financial Instruments and Exchange law.

Insider Trading

Insider Trading refers to transactions where someone with a connection to a listed company uses information which they acquired through their official job or based on their position, such as a not-yet-released financial statement, etc with the potential to have a large impact on investors, to conduct an illegal sale or purchase of a stock.

When this kind of trade occurs, general investors who do not have access to this information are at an unfair disadvantage. This may result not only in unexpected losses, but may also cause investors to lose faith in the overall reliability of the market.

In order to prevent this from occurring, the Market Surveillance and Compliance Department examines all important company information with has the potential to significantly affect investors such as the issuing of stocks, insolvency, mergers, a loss of capital, and settlements of accounts, etc. The department confirms the details of this information and analyzes the buying and selling patterns of the market.

Market Manipulation

There are other types of unfair trades which, similar to insider trading, exploit important company information that has yet to be released to the public to influence the market.

For example, this includes any effort to make personal gains by deliberately altering the market to form prices in an unnatural way. This is done in a manner such that it mistakenly appears to others as if it were following the natural laws of supply and demand.

This action is referred to as market manipulation and, like insider trading, it is an unfair type of price forming action which may have an unexpected negative impact on investors.

For this reason the Market Surveillance and Compliance Department establishes certain distinct criteria which it uses to evaluate and analyze the movements of these types of transactions. The department's examinations then target stocks with sudden price or trade volume increases, stocks with a large number of buy orders accumulating, as well as stocks with rumors than can disturb buying and selling circulating around them.

Other

Not only limited to insider trading and market manipulation, laws and regulations prohibit any other action which may have a potentially negative impact on investors and cause them to lose faith in the market.

Examples of this kind of action include: inappropriate endorsements of specific securities for purchase or sale, exploiting accounting periods with the intent to raise a securities price at the credit or account settlement date, or any purchases, etc. made by an underwriter for their own account for any reason not consistent with stabilizing the market.

The Market Surveillance and Compliance Department established clear standards to identify these types of actions. The department then targets the securities which meet these standards for surveillance and analyzes their buying and selling patterns, etc.