What is a Stock Watcher

A stock watcher is a program that monitors trading activity on the New York Stock Exchange (NYSE).

BREAKING DOWN Stock Watcher

The stock watcher program is designed to track and identify any patterns of activity on the stock market that could indicate trading is being influenced by unusual means. The program works to separate out suspicious trading activity that could be happening as the result of rumors or other illegal activities for further investigation.

When the stock watcher has determined that trades are the result of abnormal influences, such as in reaction to rumors or as the result of fraud, representatives of the NYSE will look further into the activities that raised the red flags. Depending on their findings, they may request further information from the parties involved in the flagged activities, or they may turn their findings over to the stock market enforcement agency, the Securities and Exchange Commission (SEC).

The SEC is comprised of five divisions and has 23 offices in the United States. The commission is responsible for all aspects of oversight of the U.S. stock market. From creating rules, to enforcing them, the SEC handles it all. The five divisions are the Division of Corporate Finance, the Division of Enforcement, The Division of Investment Management, the Division of Economic and Risk Analysis and the Division of Trading and Markets.

Many foreign markets have their own oversight commissions that are responsible for maintaining fair and honest trade practices.

Stock Market Fraud in the News

Many notable scams have been perpetrated on the stock market over the years. Most of them take place when representatives distort the earnings or losses sustained by the company over a given period. Some of these cases, however, take place when individuals make trades based off insider information that become privy to prior to the public. A famous example of this would be the case of Martha Stewart. In 2004, Stewart was convicted of conspiracy, obstruction of agency proceedings and making false statements to investigators during the investigation into accusations of insider trading. Investigators alleged that Stewart sold off her shares of ImClone Stock just ahead of an announcement that one of the drugs produced by the company was not going to get its expected Food and Drug Administration (FDA) approval. In the pharmaceutical industry, an FDA rejection tends to cause the price of shares to dip once the information goes public.  

Stewart received insider information ahead of the FDA’s announcement and sold off $200,000 worth of stocks, which saved her an estimated $45,000 once the market reacted to the news. She had received this information from one of the founding doctors of ImClone, who had advised close friends and family to sell before the coming news.

Stewart served five months as a result of her conviction and was released from prison in 2004.