Raising the alarm on suspicious trading

IT'S probably not that widely known, but stockbrokers and trading representatives (TRs) are obliged under current Singapore Exchange (SGX) rules not only to refrain from indulging in suspicious trades but also to report such trades to the authorities. Given that there have often been calls for regulators to do more to stamp out market manipulation and rigging, it is necessary to remind the broking community of this duty.

Under SGX's Rulebook's Practice Note 13.8.1, TRs are urged not to engage in trades which would amount to creating a false market. Although the rule allows for legitimate trading strategies based on genuine forces of demand and supply, it also states that TRs should not blindly execute trades on behalf of clients which might be construed as suspicious.

There is guidance on what might be construed as suspicious: whether the trade would result in a material change in price; whether it is unusual for that client, given his or her investment profile (which, of course, means that TRs have to know their clients well); and whether the order is placed far beyond the prevailing bid-ask spread.