SESC policing Net to halt illegal deals

Online stock trading, far from being an activity that is under the shroud of cyberspace anonymity, is actually checked for illegal transactions by the minute, according to sources.

The Securities and Exchange Surveillance Commission (SESC), along with stock markets, is beefing up its surveillance of the Net for clues of insider trading and its analysis of transaction data.

Such vigilance paid off in April with the arrests of three Chinese nationals, including an employee of Nomura Securities Co., on suspicion of insider trading, according to the sources.

The 30-year-old employee, who has since been fired by the brokerage, and the two others traded in stocks using accounts at more than one online broker from the summer of 2006.

The employee allegedly leaked information he obtained through his job to his two compatriots so they could buy and sell lucrative shares.

The revelation came after a stock exchange contacted an Internet-based broker in spring 2007 to express concern about a suspicious account.

By checking the account, the securities broker soon uncovered suspicious transactions and reported the findings to the SESC, the market watchdog.

The account was held in the name of an individual different from the three men who were arrested. But the commission learned heavy transactions took place just before and after the release of corporate merger and acquisition plans involving Nomura Securities.

The SESC tracked back to the former Nomura employee by analyzing the account's records of money transfers, according to the sources.

Online trading accounts for an estimated 90 percent of transactions by individual investors.

It is said to be rife with insider and other illegal actions because transactions can be completed on the Net and there is little or no need to directly contact brokers.

"The former Nomura employee, who had joined the brokerage only in February 2006, appears to have underestimated (such surveillance)," said one source.

The Tokyo Stock Exchange last year strengthened its system to search information on Internet bulletin boards.

If suspicious transactions are detected, the exchange asks brokerages to report detailed records. It also exchanges information with the SESC.

The SESC, for its part, monitors all key corporate information released on the Net.

"We keep a close watch for illegal transactions, no matter how small they are in value," said a senior commission official.

The SESC is planning to have its system hooked up to those of securities houses and stock exchanges by May 2009, so data on sell and buy actions will be immediately available, according to sources.(IHT/Asahi: May 8,2008)