Stock Watcher

What Is a Stock Watcher?

A stock watcher is a digital program that monitors trading activity on the New York Stock Exchange (NYSE). Stock watchers track trades to identify patterns that indicate suspicious trading. Illegal trading can occur based on rumor, inside information, or illegal activities.

Understanding a Stock Watcher

The stock watcher program tracks and identifies patterns of activity on the stock market that could indicate trading is being influenced by unusual means. For example, the program seeks out suspicious trading that could be the result of rumors or other nefarious activity.

If a stock watcher determines that trades are the result of fraud, for example, representatives of the NYSE will investigate. Depending on the 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 composed of five divisions and 25 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 have taken place when representatives distort the earnings or losses over a given period. However, some of these cases occur when individuals make trades based on insider information that they become privy to prior to the public.

A famous example is 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 receive its expected approval from the Food and Drug Administration (FDA). 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 received this information from one of ImClone's founding doctors, 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.