Licence to kill
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.