The Gaps and Flaws in the Current South African Anti-Market Abuse Enforcement Framework in Relation to Selected Aspects of the Financial Markets

Howard Chitimira

doi:10.5901/mjss.2014.v5n4p236

Abstract

The objective of this article is to analyse and reveal that the enforcement of market abuse laws has been and still is, problematic in South Africa. In this regard, the article provides an overview analysis of the gaps and flaws in the current anti-market abuse enforcement framework in relation to some selected specific aspects of the financial markets in South Africa. This is primarily done to increase awareness on the part of the general public, policy makers and other relevant stakeholders and to innovate possible solutions to such flaws and challenges in order to enhance the enforcement of the market abuse ban in South Africa. Moreover, this is done to investigate whether the current South African anti-market abuse enforcement framework is robust enough to deal with some market abuse practices that manifested during the recent global financial crisis. In relation to this, the article seeks to explore this and other enforcement-related concerns by, first, taking a closer look at the adequacy of the South African anti-market abuse enforcement framework with regard to market transparency. Secondly, the adequacy of the South African anti-market abuse enforcement framework with regard to investor due diligence will be discussed. Thirdly, the adequacy of the aforementioned enforcement framework will be examined in relation to issuer transparency. Lastly, a similar examination regarding credit rating agencies will be undertaken. DOI: 10.5901/mjss.2014.v5n4p236

Highlights

The JSE requires all issuers of listed securities to timeously disclose non-public price-sensitive information relating to any securities to inter alia promote transparency in the regulated financial markets and to prevent market abuse practices
The Financial Markets Act merely impose some general requirements on clearing house license holders to ensure that the “fit and proper requirements” prescribed by the Registrar of Securities Services are met by the applicant, its directors and senior management
Giving due regard to the applicable IOSCO Good Practices in Relation to Investment Managers’ Due Diligence When Investing in Structured Finance Instruments guidelines,72 it is hoped that a specific statute solely dealing with market transparency, issuer transparency and investor due diligence will be enacted in future to enhance and enable The Financial Services Board (the FSB) and the Johannesburg Stock Exchange Limited (the JSE) to enforce investor due diligence best practices and to curb systemic risks and possible cross-border market abuse activity in the South African financial markets

Summary

Introduction

It is generally accepted that there is no comprehensive and satisfactory definition of “market abuse” that exist to date. for the purposes of this article “market abuse” is used as a generic term referring to insider trading and market manipulation. 2 South Africa had anti–market abuse legislation in place since the late 1990s but the enforcement of such legislation to combat market abuse activities has been inconsistent and problematic to date.3the objective of this article is to analyse and reveal that the enforcement of market abuse laws has been and still is, problematic in South Africa. For instance, several factors like the inherent complexities and flaws in the detection, prosecution and prevention of market abuse practices have contributed too many challenges that are associated with the inconsistent enforcement of the market abuse laws in South Africa to date. In this regard, the article provides an overview analysis of the gaps and flaws in the current anti-market abuse enforcement framework in relation to some selected specific aspects of the financial markets in South Africa. Several factors like the inherent complexities and flaws in the detection, prosecution and prevention of market abuse practices have contributed too many challenges that are associated with the inconsistent enforcement of the market abuse laws in South Africa to date.5 In this regard, the article provides an overview analysis of the gaps and flaws in the current anti-market abuse enforcement framework in relation to some selected specific aspects of the financial markets in South Africa. This is primarily done to increase awareness on the part of the general public, policy makers and other relevant stakeholders and to innovate possible solutions to such flaws and challenges in order to enhance the enforcement of the market abuse ban in South Africa. A similar examination regarding credit rating agencies will be undertaken

Objectives

Results

Conclusion