Methods for Detection of Non-typical Transactions. Application for Russian Stock Market
Russian stock market has quite а long history from its establishment in 90th of XX century till nowadays. Current operational and legal infrastructure of the financial market in Russia has [so far] been established as a complete system. And the market itself has become an essential part of the Russian economy.
Despite all modern developments, high market liquidity and securities turnover level, especially during the pre-crisis period of the year 2008, regulatory and controlling infrastructure has not developed sufficiently to be considered mature and complete. Allegedly, the most widespread market abuses in Russian stock market are illegal insider trading and market manipulation. It worth noting that the legal framework for that kind of control and monitoring activities on the market was not established till the end of 2010 when the federal act on prohibition of insider trading and markets manipulation was adopted (Federal Law № 224 – FL 224).
The FL № 224 introduced the notion of «insider», «insider (material) information» and declared norms and regulations for prevention of illegal activities on the financial market. It is obvious that it will take a while to fully incorporate all the innovations into the market and make the majority of the Russian stock market participants adopt «prudent» behavior. And it will definitely be accompanied by the development of comprehensive control and monitoring infrastructure, a bulk of government information letters and intra-firm bylaws concerning insider trading, material information, compliance guidelines etc. The process will be a little chaotic and steplike along with the information and experience accumulation within the market and by its participants.
The above mentioned regulatory, control and compliance documents can be viewed as a «cover» (or «shell») for its «contents» – the effective anti-fraud infrastructure in the market. Here one can refer to the anti-fraud infrastructure as specific software and hardware-based monitoring solutions for exchanges and for the regulator (Federal Department of Financial Markets, Russian stock market regulator), proper disclosure system, dedicated staff within market participants etc.
Therefore the development of an efficient control and monitoring system supported by thorough research work is highly topical. And one of the most important components of such a system is market abuse detection methods. The rest of the article includes the discussion of some aspects of this «ideal» monitoring system, a brief summary of the existing literature on the subject and the indicative example of one newly developed math approach.