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SET homes in on 'manipulator'


June 4, 1999 -- THAI regulators believe the spectacular manipulation of the Stock Exchange of Thailand (SET) index during the final minute of trading on Tuesday of last week was motivated by attempts to profit from over-the-counter transactions, rather than from Singapore futures market transactions, as had been widely thought.

SET regulators are now closing their investigation into the alleged May 25 manipulation of the index, in which an investor dumped four big-cap stocks at floor prices in the last minute of the trading session to send the index down by about 15 points.

Brokerage house Securities One executed the abnormal sell transactions at the close for Siam Cement, Siam City Cement, Siam Makro and Advance Agro, which its executives later claimed were simply normal ''basket-order'' programme trades that involved transactions of several stocks at one time.

Thai regulators were furious over the incident, which bordered on illegal trading and gave the impression that the Thai market was not adequately regulated or subject to fair-play.

Initially, speculation over the motivation of the manipulation centred on the theory that the investor attempted to make money from his positions in Thailand Stock Index Futures, which are listed on the Singapore International Money Exchange (Simex). But one Thai regulator said this theory had not been substantiated after a close study of Simex's Thai futures index.

The index is calculated every minute in the final hour, between 15.50 and 16.30, of the trading session on the Thai stock exchange. There is a data point at 15.31, 15.32, 15.33, 15.34 and so on, until 16.30. Altogether, 60 interval data points are averaged out to produce the final index as a reference for options and futures trading.

The regulator explained that it was unlikely that the investor dumping the Thai stocks on May 25 was aiming at profiting from the positions on Simex, since he got into the action only at the last minute of the trading session in the Thai bourse, which could not influence the direction of Simex. To manipulate the index on Simex, the investor would need to do so for the full final hour, which, in practice, is extremely difficult to do.

The regulator added that a more realistic theory was that the investor had got into an over-the-counter derivatives contract, or informal and unregulated transactions, with another counter-party, and needed to influence the SET index in a certain way to make profits from the positions held. Manipulating the Thai SET index was relatively easy since the amount of money that involved was not large and it could be done by trading at the close, which had not been adequately regulated by the exchange authorities.

The Thai authorities have now zoomed in on the suspect involved in the abnormal stock-dumping, and the person's identity will be revealed if found guilty of illegal trading.

To prevent this kind of incident from happening again, the Thai authorities have been studying different models from several countries in Asia and Europe. One way of doing so is to allow trading to end at 16.20 hours. Then, between 16.20 and 16.30, the exchange authorities would allow brokers to key in bid and offer prices for stocks, based upon which they would create an algorithm, or mathematical formula, to calculate the closing SET index.

This is similar to the way the authorities are now allowing brokers to get involved in pre-opening trading sessions before the market starts at 10.00, so that bid and offer prices can be matched.




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