Brokerages to get more SGX data on possible market rigging
Quarterly reports, beginning with the first one this week,
will cover alerts triggered by suspicious trading activity
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Quarterly reports, beginning with the first one this week, will cover alerts triggered by suspicious trading activity
Jamie Lee
29 September 2016
The Singapore Exchange (SGX) will push out more data linked to possible market rigging to brokerages in a bid to lift surveillance standards, it said on Wednesday.
From this week, SGX will break down details of alerts on suspicious trading activity triggered from activity at brokerages, and send that report to each broking house. The alerts will be taken from SGX's real-time surveillance system.
Each brokerage that is an SGX member will receive a set of data - known as the Surveillance Dashboard - that is specific to alerts from its house only. But brokerages will also get their ranking against peers in the same industry based on the number of alerts from the firm. US authorities have also sent similar reports to US brokerages, BT understands.
The alerts are to do with three forms of market rigging: spoofing, layering and "marking the close".
On average, SGX gets three alerts a day for these three activities, Tan Boon Gin, SGX chief regulatory officer, told The Business Times in an interview. The bourse has also referred 20 cases of market manipulation to the Monetary Authority of Singapore between July 1, 2015, and June 30, 2016, up from 13 in the prior 12 months.
In rigging a market, errant persons usually create fake orders to distort the true demand and supply in the market - that is, to create a false market.
With spoofing, an errant trader submits a genuine order on one side of the order book, and then sends large number of fake orders on the other side of the book. For example, if his true intention is to buy shares, he would send large fake "sell" orders to mislead the market to think there is extreme selling pressure.
This pushes the price down as genuine "sell" orders from other market players are put in, which allows him to execute his genuine "buy" order at a lower price. He then cancels the fake "sell" orders.
With layering, an errant trader will layer fake orders, rather than sending a whole chunk of fictitious trades through. To be clear, layering of genuine trades can also be done for legitimate reasons, such as for market making, SGX noted.
In the third case, traders can be asked to fix the closing price of a security. The closing price is regularly used to measure an instrument's price performance, so a "mark the close" fix gives a false impression the security is more or less valued than what the market thinks it is worth.
These are explained in a new trade surveillance handbook that SGX has also launched to boost industry education on such errant practices.
SGX's Mr Tan said the insights would allow market participants to better spot and analyse patterns of potential market manipulation, noting that these techniques are not specific to high frequency trading. As it is, brokerages are also supposed to have proper controls in place to spot market rigging.
Armed with more information, brokerages can query remisiers or clients on suspicious activities, and halt trading if necessary, he added. The report details the date and time when the alerts are triggered, the counter which triggered the alert, and the dealer involved.
Brokerages have information on clients and dealers that can tease out possible motives, or explain a client's fishy behaviour. "For example, if the member has been making margin calls, and the activity is in shares that are the collateral for the margin account, then the member may be further alerted," said Mr Tan.
Esmond Choo, senior executive director at UOB Kay Hian, said the moves would be positive in ensuring integrity in the market. But as more investigations are still needed to determine wrongdoing, dealers will have to "tread carefully" to keep themselves on the right side of the law.
Lim Kok Ann, chairman of the Securities Association of Singapore, said that the members are supportive of this collaborative approach to boost the quality of the Singapore marketplace. "Investors will only participate in a market which has a level playing field, and is secure and efficient," he added.
The first Dashboard will be released to brokerages this week and will cover alerts generated from April to August 2016. Subsequent Dashboards will be released on a quarterly basis from January 2017.