Li­cence to kill

Finweek English Edition - - Creating Wealth - Marc Ash­ton

DEAL­STREAM SE­CU­RI­TIES – one of South Africa’s largest con­tracts for dif­fer­ence (CFD) mar­ket traders – abruptly closed its doors last week, leav­ing clients out of pocket. What started out with clients be­ing faced with “tech­ni­cal glitches” that pre­vented them from ex­e­cut­ing trades on their ac­counts rapidly de­scended into al­legedly pil­fered ac­counts and a lot of fin­ger point­ing and de­nials.

In ad­di­tion, AltX-listed Vox Tele­com re­vealed it had R30m in share­hold­ers’ and staff funds sit­ting with an un­li­censed trader. Its share price has lost nearly 40% since that ad­mis­sion. Vox CEO Dou­glas Reed sent an email to staff late last week say­ing he’d been alerted to the fact there may be trou­ble at Deal­stream. Reed met Deal­stream MD Rus­sell Leigh and was re­as­sured the funds of Vox, which Reed later dis­closed were around R30m (ex­clud­ing staff trad­ing ac­counts) were se­cure.

Deal­stream’s Mel­rose Arch doors closed shortly there­after.

Mean­while, Leigh went to ground and staff and clients are none the wiser.

Reed says in his email to staff: “What this means is that what­ever you owned is gone and the chances of re­cov­er­ing any­thing are zero. Those with the staff loans will be left with a li­a­bil­ity.”

Th­ese events brought JSE di­rec­tor of trad­ing Al­lan Thom­son out all guns blaz­ing as he used the op­por­tu­nity to high­light the JSE’s per­ceived risks of the un­reg­u­lated CFD mar­ket and to push the reg­u­lated en­vi­ron­ment of its own sin­gle stock fu­tures (SSFs) mar­ket.

CFDs al­low traders to take geared po­si­tions on spe­cific fu­tures con­tracts on shares without need­ing to set­tle with phys­i­cal de­liv­ery of shares. Trades are all set­tled by cash and “marked to mar­ket” on a daily ba­sis.

Global Trader, a com­peti­tor of Deal­stream in the CFD mar­ket, didn’t take kindly to the at­tack. CEO Charles Sav­age was quick to point out that while the re­la­tion­ship be­tween Deal­stream and its clients may have been through the CFD in­stru­ment, the “other side of the trade” is the re­la­tion­ship be­tween the clear­ing mem­ber (in this case, Rand Mer­chant Bank and Deal­stream, which was through the reg­u­lated SSF mar­ket.

Sav­age says nearly 40% of the trade done on the Lon­don Stock Ex­change is made up of CFD trad­ing. “This wasn’t a prod­uct fail­ure but in­stead a man­age­ment and risk man­age­ment fail­ure,” says Sav­age.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.