JSE: recall trades will be probed
The JSE says it is examining trading in securities that were affected by news of the recall of former finance minister Pravin Gordhan from an international investor road show.
“The news precipitated material moves in the value of numerous listed securities including currency futures. Once the JSE has finalised its review, it will forward its findings to the Financial Services Board,” said director of market regulation Shaun Davies.
On March 27, President Jacob Zuma abruptly recalled Gordhan from meetings in London with investors and ratings agencies, sending banks, government bonds and the rand weaker.
The JSE reviewed trading in listed securities ahead of any market-moving event to identify activity that might warrant further investigation by the Financial Services Board’s market abuse department,
Davies said. He would not be drawn on which securities were being investigated, but it is likely that banking stocks will be among them.
Banks were hit hard by news of the recall, which culminated in Gordhan’s firing, sending bank shares even lower.
Traders can profit off declines in share prices by shorting stocks, which entails borrowing shares from brokers to on-sell and then buying the shares back at a lower price, profiting off the difference.
Having hit an 18-month high earlier in the day, the rand reacted strongly to the news of Gordhan’s recall, closing 1.7% weaker. It was 8% off its high by March 31, further weakened by Zuma’s cabinet reshuffle.
Mohamed Sola, a trader, said there was increased trading volume on dollar-rand currency futures around the time the news of the recall broke.
Currency futures are contracts to exchange one currency for another on a specified future date.
“The timing of this trade may have been suspiciously accurate”, particularly given the strong level of the rand shortly before trading was executed and the news broke, Sola said.
The JSE has limited sight of currency trades, because most of this trading is done via overthe-counter exchanges.