Surveillance Surveillance Framework - Page 2

Why do you need this book? Some abstracts will help to answer the question Why Market Surveillance (page 8) The first question to a newly appointed surveillance professional should be what is the purpose of market surveillance? The simple answer to that is - to maintain market quality! This raises the question about the definition of market quality. I liked the answer of Prof. Michael Aitken in which he stated that Market quality reflects dual criteria of Market Efficiency and Market Integrity. Here Market Efficiency refers to the degree to which stock prices and other securities prices reflect all available, relevant information, and those results in a low trading cost. Market Integrity, on the other hand, might be defined as the extent to which investors are engaged in prohibited trading behaviors. It’s obvious that this profession has its own terminology. Market quality, market integrity, and market efficiency are just the tip of the iceberg. The question is, whether there is a standard terminology. The answer is yes and no! In some areas of the profession there is an agreement on some terms, but not all. This framework sets the ground for an initiative to set a universal terminology for surveillance profession. For instance, are prohibited behavior, abusive behavior, and manipulative behavior referring to the same behavior? Again, there isn’t a clear universal answer to this. Before moving forward, we need to agree on the definition of some terms to be able to understand the concept and philosophy of surveillance. The Committee of European Securities Regulators (CESR) sets impressive definitions to some basic terms; Market Activities refers to the different types of operations or strategies that may be undertaken such as arbitraging, hedging, and short selling. It’s considered to be too broad to address Market Abuse. While Market Practices would cover the way, the market activities are handled and executed. Abusive behaviors are prohibited market practices that should be handled by surveillance professionals. Page 1 of 48