"Guardians Protecting the Japanese Market... Captured by the Comprehensive Surveillance System" [War Against Stock Manipulation]

by Cha Minyoung

by Kim Minyoung

Published 20 Mar.2024 06:00(KST)

Updated 20 Mar.2024 07:55(KST)

②-⑵ Wagatsuma Aira, Senior Manager of Public Relations at Japan Exchange Group (JPX)
Independent Decision-Making Structure
Advancement of Trading-Related Systems

The Tokyo Stock Exchange located in Chuo-ku, Tokyo, Japan.

The Tokyo Stock Exchange located in Chuo-ku, Tokyo, Japan.

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In Japan, there exists the Self-Regulatory Organization (JPX-R) of the Japan Exchange Group, which closely resembles the Market Surveillance Committee of the Korea Exchange in South Korea. It operates independently from the exchange while demonstrating high expertise in close proximity to the market and carries out actual duties.


Aira Wagatsuma, Senior Manager of Public Relations at the Japan Exchange Group (JPX), stated in a written interview with Asia Economy on the 18th, "JPX-R operates in close proximity to the market, demonstrating high expertise, and performs practical duties independently and neutrally from the exchange." She added, "The highest decision-making body is the board of directors, where the majority are external directors, and an independent governance structure functions throughout the decision-making process."


As of the end of March 2023, JPX-R has a total of 192 employees. These employees mainly perform three types of duties: listing examination, which reviews the qualifications of companies wishing to be listed; listing management, which verifies information disclosure and corporate behavior of listed companies; and inspection, which ensures the reliability of work by market participants such as securities firms; and trade examination, which monitors unfair trading.


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Senior Manager Aira emphasized, "The organizational and operational structure of JPX-R is unique worldwide, and I believe it is an excellent form that maintains both the efficiency and convenience of market operations as well as the fairness and reliability of the capital market."


In the trade examination phase aimed at detecting unfair trading activities within the capital market, the process is subdivided into two stages: an initial review called 'investigation' and a more detailed analysis called 'examination' for cases requiring further scrutiny. All trade examination results are reported to the Securities and Exchange Surveillance Commission (SESC). According to the fiscal year 2023 report (April 2022 to March 2023), there were 2,877 investigations and 116 examinations conducted over the past year. Among the examinations, insider trading accounted for 94 cases, making up the majority, followed by 22 cases of stock price manipulation. The five-year average annual number of investigations is 2,830, and examinations are 157.


Similar to South Korea, as trading forms become more complex in Japan, systems related to trade examination are advancing. A representative example is high-frequency trading (HFT). The use of computer systems in detecting unfair trading such as insider trading and stock price manipulation has increased. Senior Manager Aira explained, "With the increase of new trading forms like HFT and the consequent surge in trade order volume, we have worked to enhance trade examination systems. Since April 2016, we began verification of introducing AI technology for spot trade examination in cooperation with the Tokyo Stock Exchange under JPX, and have applied it to examination work since March 2018."


JPX-R is also gradually implementing a comprehensive system for market surveillance from early this year as part of the Kishida Cabinet's 'Grand Design Project.' Senior Manager Aira said, "Technological innovations in financial transactions, including the expansion of algorithmic trading and HFT, are expected to advance further, and new financial products and trading methods will be developed. We will continue to strive to respond to these changes."


Editor's NoteThe 'Ra Deok-yeon Gate,' the largest-ever stock price manipulation crime with a total illicit gain of 730.5 billion KRW, is approaching its one-year anniversary (April 24, 2023), yet the victims' nightmare has not ended. There are no effective victim remedies in the Korean capital market. Litigation is the only option, but due to cost burdens and difficulties in proving damages, many do not even attempt it. The amendment to the Capital Markets Act, which supplemented the limitations of criminal punishment and introduced effective monetary sanctions following the 'Ra Deok-yeon Gate,' is significant. However, to eradicate securities crimes that continue to increase in various forms, it is necessary to establish systems that can efficiently detect and investigate these crimes and to improve additional systems for swift and strict sanctions. The Asia Economy Securities Capital Market Department Special Investigation Team examines advanced systems in overseas capital markets and reviews the challenges and directions for our market to suppress securities crimes. Since intelligent and organized criminal acts occur, we also seek effective measures for investor damage relief. <We welcome tips>
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We plan to focus on various perspectives regarding unfair trading such as insider trading, fraudulent trading, market manipulation, and reporting violations. We will strive to prepare comprehensive countermeasures to eradicate capital market crimes. Please send tips to (lsa@asiae.co.kr). We will investigate thoroughly and report.


▲Team Leader Seon-ae Lee, Manager △Min-young Kim, Yoon-joo Hwang, Min-young Cha, Dae-hyun Kim, Reporters

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