In a first for the local financial services sector, South Africa’s key financial services institutions, regulatory bodies as well as other authorities have come together to collaborate and construct the SA Market Surveillance Draft Code of Conduct.
This Draft Code of Conduct, presented at the 2nd South African Market Surveillance Conference hosted by Investec, comes at a critical time as the local financial sector actively works on reforms and new legislation to modernise the regulatory framework and align with international standards to bolster market surveillance against market abuse and anticompetitive practices.
Market surveillance is vital to detect, prevent, and monitor market abuses and any other anticompetitive practice. In an increasingly complex and interconnected global market, market surveillance is not just a regulatory obligation, but a strategic imperative to help stay ahead of emerging risks.
Opening the conference, Nishlan Samujh, Investec Group CFO, spoke to the continuous risk, speed of information and complexity in the industry and the importance around creating transparency into the market based on the utmost integrity.
“You know the market is arriving at a pinnacle when it takes responsibility for itself,” said Samujh. “Last year we decided to bring market surveillance to the fore – to really embed trust into the system, create boundaries and an efficiency to operate even when the market is not looking. This year, it’s about bringing the community together to share these best practices. We all have a role to play and it’s important we acknowledge that trust is fundamental, and we need to embed it in how we think, operate and execute.”
Market surveillance is a cornerstone and essential component to our country’s financial risk management framework. The SA Market Surveillance Draft Code of Conduct details how the members of an exchange should conduct themselves in an ethical, fair, transparent, and responsible way that promotes the integrity and proper functioning of South Africa’s financial markets and reduces systemic risk, by ensuring all participants effectively manage their market abuse risk.
It also covers various aspects, including communication surveillance, chat room principles, social media monitoring and oversight, trade surveillance, remote working, algorithmic trading governance process, and aspects of market conduct, such as dealing with confidential information, mitigating financial crime risk, and sharing information.
Speaking at the conference, Olano Makhubela, FSCA Executive Director mentioned the need to regulate Over the Counter (OTC) markets, addressing transparency and systemic risks in South Africa. “New technologies can introduce risk into the system as we see with high frequency trading, but it should also support financial access and reduce manual operations which can lend themselves to feed errors. The importance of protecting data and technology ecosystems then also becomes important.”
Part of the FSCA’s theme in their supervisory plans for this financial year will be to test ICT systems and the robustness of the market infrastructures and the participants who play in this ecosystem including ODPs.
The SA Market Surveillance Draft Code of Conduct is a strong indicator of the industry’s commitment to ensuring that it maintains fair and transparent financial markets that safeguard investor funds. It also seeks to support legislation aimed at improving transparency and enhancing controls. While voluntary and not legally binding, this proposed SA Market Surveillance Draft Code of Conduct will complement changes to legislation and help to enhance and reinforce the regulatory environment.
The local financial services sector has faced numerous challenges in its ability to monitor, detect and prevent various forms of market abuse, such as insider trading, price or market manipulation, and the dissemination of false or misleading statements. These deficiencies erode financial market and investor confidence, hampering investment, wealth creation and economic growth.
“By implementing the code, we aim to uphold the reputation of the SA financial market on a global scale, thereby attracting more investments and promoting economic growth in SA,” said Happy Shihau, Head of Compliance at Investec Corporation and Institutional Banking. “As the world continues to integrate, the South African financial market has an important role to play in driving some of the best practices globally. We need to adopt transparent and fair market practices to protect the integrity of our market and maintain investor confidence. The Code is going to play an important role in guiding stakeholders to comply with relevant regulations.”
Major role players from major financial institutions, regulatory bodies and other appropriate authorities collaborated to develop the code. The working groups included representatives from Investec, the Johannesburg Stock Exchange (JSE), the South African Institute of Financial Markets (SAIFM), and FSCA, among other contributors including some of the large South African banks and brokers in the market.
“With so many industry role players working to improve transparency, accountability, and ethical behaviour in a well-functioning market, it is a strong indicator of the local financial industry’s commitment to protecting the integrity of the sector. This should give international investors the confidence to invest in the country so that everyone benefits from knock-on effects including economic growth and job creation,” elaborates Shihau.
In this environment, the sector must ensure there is a level playing field across all institutions and implement end-to-end solutions that can constantly monitor activity and follow transactions from pre-trade to trading to post-trading phases, with a holistic structure in place to support the process from detection to taking remedial action.
“It is important to continuously improve and keep abreast of both local and international developments and part of this improvement is to consider how best to modernise the Self-Regulating Organisation (SRO) model. While there is no single best practice approach, it means that we need to carefully assess what the challenges with the current system are and how best to address them,” adds Makhubela. “Some of those challenges come with the reality and realisation that the commercialisation of exchanges and entry of various market infrastructures in the system globally and locally, have complicated the SRO model and a very careful and honest self-assessment of the resources required both financial acumen and the necessary system is required. But we don’t need to wait for rules, regulations and laws to do the right thing – self regulation is critically important - we should not be adopting these standards simply because others are adopting them but because it is the right thing to do for ourselves, our companies, our environment and our society.”
The SA Market Surveillance Conference was hosted by Investec, sponsored by Bloomberg and Nasdaq, with participation from the FSCA, JSE, A2X, SAIFM and exchange members. For more details on the SA Market Surveillance Draft Code of Conduct, please visit https://link.investec.com/nx9faz. DM