The Securities and Exchange Commission (SEC) is to tighten loopholes while enhancing its surveillance system in a bid to better combat market frauds, officials said. ”With a new system we want to detect manipulations/frauds early so that we can put a stop to such things immediately,” a SEC official told the Business Times. Currently the SEC [...]

The Sunday Times Sri Lanka

SEC to tighten, enhance surveillance mechanisms

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The Securities and Exchange Commission (SEC) is to tighten loopholes while enhancing its surveillance system in a bid to better combat market frauds, officials said. ”With a new system we want to detect manipulations/frauds early so that we can put a stop to such things immediately,” a SEC official told the Business Times. Currently the SEC has a system from Millennium Information Technologies (MIT) which they acquired in 2010. According to the official, this system’s contract is coming up for renewal in March next year. “The SEC has an option to either extend the current system or source MIT’s latest version of the surveillance system.” He said the SEC may opt for a new system with the latest version of the MIT system or the regulator may opt for a new vendor altogether.

The official highlighted that there’s a need for a new surveillance system since the regulator now wants to detect market manipulation and insider dealing in a more effective manner. “This will enhance the SEC’s ability to monitor the market in a much more efficient and also in a professional manner,” the official added.

He said the surveillance system generates alerts out of unusual market movements while identifying curious trading patterns. It also spots odd transactions such as chronological connections with customer orders that are placed by stockbrokers. With this system, it’s possible to examine the historical performance of securities prior to the disclosure of material information pertaining to the company in question has been made. He added last year the SEC’s surveillance system was able to detect some 20 possible market violations. “There were six incidents of insider dealing, three cases of front running while itpicked up some 10 trading patterns that were questionable,” the official said.

The current system was a Rs. 20 million investment, which identifies unusual trading patterns, such as chronological connections with customer orders. This IT driven system replaced the manual checking system that was in effect over five years ago to monitor market manipulation and insider dealing.

While there was a high growth in the Colombo stock market seen in 2009, 2010 and in the first quarter of 2011, it also caused a high degree of price volatility and also created many regulatory and supervisory issues. “Market misconduct, particularly in the form of insider dealing and market manipulation is, put simply, cheating and reduces investor confidence. The new system will help the SEC identify the signs of insider trading and market abuse,” he explained.

Broker in the dock
A high profile stock broking house is in the dock for alleged fraudulent activities that happened during the last regime, informed sources said.

The probe against the company and top officials are nearing completion, according to them. The probe is essentially on market manipulation and insider dealing, according to the sources. “The SEC has warned a few stockbrokers verbally since January for upsetting (the market) and disruptive behaviour,” a source said while declining to give more details.

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