Examination of Trades (Market Surveillance)
The following examples are actual sanctions and other actions taken by Tokyo Commodity Exchange (TOCOM).
Case 1: "Artificial Price Manipulation" at the Opening Auction
Dealer A of Member X placed sell limit orders at different prices during the order acceptance period. A's lowest priced order was the price which would see the most executed volume at the opening auction.
Immediately prior to the opening auction (one second before), A cancelled all their lowest priced orders, meaning that the price with the most executed volume at the opening auction rose significantly from the one that was expected immediately beforehand. As a result, the remaining orders placed by A were executed at a higher price, and when the price subsequently declined, A closed out (bought back) these sell trades, making a profit on the difference.
TOCOM's Judgment on Case 1
In addition to the above, in the past month, A had similarly placed orders during the order acceptance period and cancelled them just before the opening auction across multiple products on multiple occasions. Most of these order cancellations caused price fluctuations and A profited from some of the transactions.
TOCOM objectively considered this series of acts, comprehensively taking into account the actual occurrence of price fluctuations, the repetitive and continuous nature of the acts, and the benefits received. As a result, TOCOM determined that the acts in question undermined TOCOM's credibility and violated the just and equitable principles of trade, and sanctioned Member X for violating its Market Rules (imposition of a fine). It also ordered Member X to improve its operations by, among other things, thoroughly monitoring trading to prevent a recurrence.
Case 2: "Artificial Price Manipulation" at the Opening Auction
Immediately prior to the opening auction, a dealer at Member X cancelled some of the sell limit orders that they had placed at multiple prices, and as a result, the price that would have the most executed volume at the auction rose significantly above the price before the cancellations. The remaining sell orders placed by the dealer were executed at this greatly increased price. The dealer subsequently closed out (bought back) the trades that had been executed.
TOCOM conducted an investigation and found that the dealer in question had repeatedly engaged in the same type of behavior on numerous occasions in the past.
TOCOM's Judgment on Case 2
TOCOM objectively considered this series of acts, comprehensively taking into account the actual price fluctuations, the repetitive and continuous nature of the acts, and the benefits received. As a result, TOCOM determined that the acts in question undermined TOCOM's credibility and violated the just and equitable principles of trade, and sanctioned Member X for violating its Market Rules (imposition of a fine and suspension of permission to trade). It also ordered Member X to improve its operations by, among other things, thoroughly monitoring trading to prevent a recurrence.
Registering an order that is to be cancelled on the order book for a certain period of time may mislead other market participants about market conditions and undermine market credibility. Since the order cancellation took place at a time when many other market participants had no way to respond, TOCOM determined that it was an act that violated the just and equitable principles of trade. In addition, TOCOM had previously issued a warning to Member X for the same type of conduct.
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