Stock Exchange defends poor cousin surveillance approach

Friday 16th February 2001

By Nicholas Bryant in Sydney

The New Zealand Stock Exchange yesterday defended its practice of relying on "spotters" within the broking community to identify suspected breaches of trading rules.

A group, sometimes numbering fewer than six people, drawn from the sharebroking community, act as official market "spotters" expected to identify unusual trading.

In contrast, the Australian Stock Exchange uses an electronic surveillance system.

The spotters are charged with alerting the Stock Exchange of any significant price or volume movements in shares they feel worthy of investigation.

"They keep an eye on the market for us and draw our attention to matters of concern," NZSE managing director Bill Foster said yesterday.

Mr Foster defended the antiquated system of surveillance, saying the market was too small, with so few trades, it could not support an expensive electronic system.

The Australian exchange uses readily available computer programs designed to flag unusual trading trends.

"We have said, at this stage, it will add more cost than we think the benefit justifies [by going fully electronic]," Mr Foster said.

"Getting a more sophisticated system to pick up more alerts than we might manually, or with simple processing, is all a matter of cost benefit."

The Australian exchange, which is at a crucial stage in merger talks with the New Zealand exchange, did not wish to comment on the New Zealand system of market surveillance.

Its surveillance system has been developed and is run in-house.

Called Soma (surveillance of market activity), it is a continuously upgraded system that charts and checks all significant price and volume movements against various parameters.

Among those parameters are: historic volatility, current volatility, historic and current state of the market.

Soma is also able to differentiate and make judgments over actions in particular sectors.

For example, a 10% jump in an edgy sector is obviously not as significant as a 10% jump in a flatlining industry, particularly, as has happened locally, when the movement comes only days or hours before a price-sensitive announcement.

It can also take account of all media reports, traditional and on-line, including chat rooms.

"We can track when trades of just-sufficient size are being entered with a view to bring down or prop up a share price, and immediately get on to that broker and let him know we know," ASX spokesman Gervase Greene said yesterday.

Meanwhile, the view from across the Tasman on whether the NZSE should merge with the ASX is that the issue is practically a done deal.

Sources told The National Business Review they saw the NZSE as an usustainably small market going into the future.

With market capitalisation of only $40 billion the New Zealand exchange is a minnow compared with the Australian's $A700 billion domestic capitalisation. But even the Aussies feel vulnerable about their future and they've urged New Zealand to join them while it can.

The view from across the ditch

Comments from our readers

No comments yet