Johannesburg - A South African panel established to investigate the country’s foreign-exchange markets found that some of the nation’s Authorised Dealers inappropriately shared confidential client information, and recommended laws be changed to enable authorities to prosecute traders in future.
While the Foreign Exchange Review Committee found no found evidence of malpractice or “serious misconduct” in domestic rand trading, it proposed on Monday extending insider-trading laws to apply to currency dealers. There is no immediate need for “criminal investigations or punitive measures” as it had not found evidence of “front-running client transactions, collusion or the manipulation of any foreign exchange benchmarks,” the panel said in its report, released in Pretoria.
The South African Reserve Bank and Financial Services Board appointed the panel, headed by former senior deputy Governor James Cross, in October 2014 on concern that trading in the rand may be vulnerable to currency manipulation in overseas markets. Regulators would take action if evidence of wrongdoing were found in a separate Competition Commission investigation into international banks for allegedly fixing spot, futures and forward currency prices, the panel said.
About 20 percent of trading in the rand takes place in South Africa, with foreigners accounting for 60 percent of domestic turnover, according to the report. Global turnover in the rand is estimated at about $60 billion a day, just more than 1 percent of total trading in the world, according to an April 2013 report by the Bank for International Settlements. South Africa has 25 Authorised Dealers, with seven of them accounting for 95 percent of local turnover.
The review committee, together with market participants, drafted a code of conduct for over-the-counter markets and recommended a change in legislation that will allow the code to be “subsidiary” law. It also proposed that sections of the Financial Markets Act dealing with insider trading, market manipulation and false reporting be extended to the foreign exchange market, which would give authorities powers to prosecute market players “for instances of wrongdoing.”
The intention was to create a regulatory framework where “the rules are the same, whether you’re trading on an exchange or on an over-the-counter market,” Cross told reporters.
The committee also wants a Financial Markets Standards Group of senior market professionals and compliance officers to be formed, modeled on the US Treasury Markets Practice Group. The group’s immediate task would be to conduct a similar review to the Fair and Efficient Markets Review in the UK, which will take about 18 months.
BLOOMBERG