4.Case study (example of unfair trading) - Self-regulatory

The following trading example is an actual case in which the Exchange imposed sanctions and other dispositions against a Member.

Case 1 “ Intentional Price Manipulation ” in order matching at the opening of a session

Dealer A of Company X, a Trade Member, placed multiple sell Limit Orders (LOs) at differing prices during the order acceptance period. At the time, Dealer A’s LOs with the lowest price were the orders with the price that would maximize the execution volume in the order matching at the opening of the session.

Immediately (1 second) before the order matching at the opening of a session, Dealer A cancelled all LOs with the lowest price among the sell LOs he/she had placed. As a result, the price that would maximize the execution volume in the order matching at the opening of the session significantly rose from the one in effect before such cancellation.

Consequently, other orders that had been placed by Dealer A were executed at higher prices than they should and Dealer A was liquidated (by repurchase) shortly after at a profit as the price naturally fell.

Sanctions and other dispositions imposed by the Exchange on Case 1

It was discovered that Dealer A repeated an act of placing orders during the order acceptance period and cancelling immediately before the order matching at the opening of a session several times across various products during the past one month. In most cases, such order placement and cancellation led to price changes and Dealer A made a profit in some transactions.

After considering, in an objective and comprehensive manner, a series of relevant acts, the actual price changes caused by the acts of Dealer A, the fact that such acts were committed repeatedly and continuously, and the fact that Dealer A made a profit out of such acts, the Exchange judged that said acts impaired the reliability of the Exchange and violated the principle of fair and equitable transactions and imposed a sanction (fine) against Company X for a violation of the Market Rules and ordered Company X to improve its business operations including implementation of thorough trade monitoring in order to prevent recurrence of such practice.

Case 2 “ Intentional Price Manipulation ” in order matching at the opening of a session

A dealer of Company X, a Trade Member, cancelled part of previously placed multiple sell Limit Orders at differing prices, immediately before the order matching at the opening of a session. As a result, the opening price, which is determined as the price that maximizes the number of executed trades at the opening of the session, rose significantly as compared with the price before such cancellation. In the order matching at the opening of a session, the remaining sell orders that said dealer had placed were executed at said significantly higher price. Said dealer subsequently liquidated the executed trades (by repurchase).

It was discovered as a result of the investigation conducted by the Exchange that said dealer repeatedly committed similar acts many times in the past.

Sanctions and other dispositions imposed by the Exchange on Case 2

After considering, in an objective and comprehensive manner, the actual price changes caused by the acts of said dealer, the fact that such acts were committed repeatedly and continuously, and the fact that said dealer made a profit out of such acts, the Exchange judged that said acts impaired the reliability of the Exchange and violated the fair and equitable principles of transactions and imposed sanctions (a fine and suspension of transactions) against Company X for a violation of the Market Rules and ordered Company X to improve its business operations including implementation of thorough trade monitoring in order to prevent recurrence of such practice.

The act of indicating orders on the screen for a certain time period with the intention to cancel them later is likely to cause misunderstanding among other market participants about the market conditions and impair the market integrity. Given the fact that the cancellation of orders in the case described above was carried out in a manner that many of the other market participants did not have enough time to respond to it, the Exchange determined said act to be a violation of the fair and equitable principles of transactions. This judgment is further supported by the fact that the Exchange had previously issued a warning to Company X regarding a similar act.

TOP