Software will track cheats

The Stock Exchange is stepping up efforts to track insider traders and market manipulators through an electronic surveillance system similar to those used in Australia, Hong Kong and Singapore.

The Australian-developed "Smarts" software, to be launched in the New Zealand market next March, will alert the exchange to unusual price movements and trading volumes that warrant investigation.

"We will be doing exactly what we are doing now, but we'll be using one of the world's most sophisticated electronic surveillance systems," exchange managing director Bill Foster said.

He would not say how much the exchange had paid for the software, though he hinted that it was less than the "typical price" of about $US6 million ($14.8 million) for larger overseas markets such as Australia or Hong Kong.

"We negotiate with software suppliers to take account of the smaller size of the New Zealand market."

The exchange, which has until now monitored unusual market movements manually, would not need to hire extra staff to operate the new system or process information provided by it.

The move comes as the Securities Commission prepares to be given new insider trading enforcement and detection powers for the first time.

The Government is also contemplating a revamp of insider trading laws.

The Australian Stock Exchange has had a similar surveillance system in place for several years.

Its network can detect several different market events within programmable parameters for price movements and trading volumes.

And it picks up unusual movements across the market, or by one or more broking firms, which the exchange can then investigate.

The idea of the New Zealand exchange buying a sophisticated electronic surveillance system was one of several recommendations in a Securities Commission paper to the Government last year.

But at the time, the exchange believed its existing market monitoring systems were adequate and that the extra costs involved were not warranted in New Zealand's small market until trading volumes increased.

Mr Foster said that the exchange's existing surveillance procedures were robust.

"My concern at that time was that we didn't want to create the impression that the market was not being monitored properly.

"Nothing could have been further from the truth.

"But obviously from the point of view of credibility and maintaining the best international practice, we can see the value of having a state of the art electronic system."

Investors would ultimately meet the cost, through the exchange's fees to brokers. "There'll be an across the board reshuffling of prices to reflect where the costs are incurred," Mr Foster said.

The exchange had no plans to share the costs with other bodies such as the Securities Commission.

- NZPA