JSE and regulator rebuilding trust
• Bourse intensifies monitoring of trade activities to identify unusual movement for FSCA to be informed about
Restoring trust in SA’s financial market has become the JSE’s top priority as some foreign investors drop local stocks due to corporate scandals and a stagnant economy.
Restoring trust in SA’s financial market has become the JSE’s top priority as some foreign investors drop local stocks due to corporate scandals and a stagnant economy.
Speaking at the exchange’s first SA Trade Connect conference on Tuesday, new CEO Leila Fourie said when trust has been eroded as it has in SA, markets cease to function optimally.
Fourie’s remarks come after the JSE reported in July it had recorded more than R30bn in divestment by foreign investors in the first half of 2019, while the value of daily trade in local equities declined by 11%.
“We need to rebuild trust. Markets are built on trust ... trust that when companies announce their results that those results are a true representation of what’s truly happening in the market,” said Fourie.
Shaun Davies, director of market regulation at the JSE, said after the corporate accounting scandals at Steinhoff and Tongaat Hulett the stock exchange intensified monitoring of trade activities not only where there is suspicion of fraud but also for everyday practices that interfere with the market’s functioning.
“In our surveillance role, as we are trying to identify unusual activities for us to refer to the FSCA [Financial Sector Conduct Authority] and as we are assisting the FSCA in their ongoing investigations, we do have a lot of information about trading patterns,” he said.
While the JSE has always monitored trading activities on a real-time basis, it has been “fairly busy” in the past few years reviewing historical information to see if there is trading ahead of price-sensitive announcements in companies such as Steinhoff, Davies said. The JSE classifies market abuse as anything from insider trading to market manipulation and false statements.
Davies said that where suspicious activities have been detected, the exchange has passed on that information to the FSCA to investigate. “What we were doing in our team is determine whether anybody might have had advanced knowledge of something like that,” he said.
Divisional executive of investigations and enforcement Brandon Topham said the FSCA is investigating individuals who have been cited as masterminds of stock price manipulation.
The regulator fined Steinhoff R1.5bn in September for misrepresenting its finances to the market but said the company will only need to pay R53m of that amount.
Topham said even though the FSCA said in April it had found no evidence of insider trading on accounts that had been investigated until then, the scrutiny of Steinhoff continues. Those individuals who “typed up the memos, passed journals” are being investigated for their role in misrepresenting the company’s financial information.
“There are a number of investigations; at least 10 people are being investigated. We haven’t got to the point yet where we find that some of them have transgressed the law but you can be assured we won’t stop the matter until we have a firm conclusion,” said Topham.
In the case of Tongaat Hulett, he said “persons of interest” will be investigated. The regulator has appeared to be slow in progressing with the matter because it wants to be thorough.
“Those who have committed wrongdoing must know we are coming for them,” said Topham.