1. Copyright© JSE Limited 2005 www.jse.co.za THE NEED FOR TRADE MONITORING IN AFRICA Bill Urmson Director: Surveillance JSE LIMITED

2. © 2 TRADE MONITORING IN CONTEXT Exchange-Shopping Centre Securities-Goods on Offer Broking firms-Shopkeepers Investors-Customers Easy Access-Location Regulation-Security

3. © 3 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.

4. © 4 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.

5. © 5 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.

6. © 6 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.

7. © 7 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.

8. © 8 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.

9. © 9 Good regulation cannot make your exchange but ineffective regulation can cripple it.