Fraudulent or unfair trade practices, including manipulation of stock prices, hurt investors, and, in the long run, negatively affect the quality of securities markets, causing defection by investors. It is therefore important to adopt preemptive measures to prevent the occurrence of this type of activities, detrimental to the interests of investors.
KRX is strengthening its Realtime Stock Watch system to issue pointed warnings to branch offices of member securities or futures firms, as soon as signs of abnormal activities are detected.
- Requests for preventive measures are issued, when the Realtime Stock Watch system detects stocks or futures firms, whose trading is disproportionately accounted for by a small number of branch offices, for which excessive quantities of cancelled orders exist, warranting suspicion of price manipulation, or whose closing prices are driven up by large, last-minute purchases.
- An initial request is issued by phone or fax to the compliance team in charge of the concerned member and the concerned branch office of the member firm. If the activity on account of which the initial request of preventive measures was issued recurs within 5 days following the date of the original request;
- A second request is issued either by phone or fax or through written notification. If the same violation is uncovered within 5 days following the date of the 2nd request or the same branch office is found to have repeated the same violation 5 times or more within 1 month following such date, the case will be sent over to the Department of Member Firm Examination at the KRX Market Oversight Commission and an investigation will be initiated.
- The number of interventions under the Preventive Measure Request System has been in decline since 2001 when it was first introduced. This is an indication as to the positive effect of this warning system against unfair trade practices, driving up market transparency.
As branch offices of securities and futures firms are the frontline where signs of irregular trading activities can be first detected, they are the best places for launching monitoring efforts. KRX, accordingly, is planning to have trade monitoring systems set up at these offices to turn them into outposts for fighting violations of equitable trading principles.
- Also, KRX provided support for the implementation of in-house monitoring systems internally operated by futures firms, which were not covered by any surveillance system prior to the launch of KRX. The in-house monitoring systems will enter operation from May of this year.
- In conjunction with these initiatives, between April 13 and April 14, 2005 the KRX Market Oversight Commission will be hosting a workshop for officers of securities and futures firms in charge of monitoring trading activities. The workshop is intended to provide necessary know-how to securities and futures firms so that they can assume a vanguard role in market oversight efforts.
Launch of KRX Market Oversight Commission to be followed by a two-way communication system with securities and futures firms.
- As a way of providing concrete assistance to securities and futures firms in their effort to prevent unfair trade practices, KRX will open an internet hotline (http://moc.krx.co.kr) providing related resources in May 2005.
- Also, KRX is planning to set up a market oversight information center by the end of this year. The center will offer legal advices on issues relating to prevention of unfair trade practices and related disputes, accept reports of violations, and put in place other various investor protection programs.
