The Johannesburg Stock Exchange. (Photo: amaBhungane) 
Five years ago, a small company, Inhlanhla Ventures, was placed in a difficult financial position.
It had been investing in shares on the stock market through a broker.
As part of their agreement, the broker would provide credit to Inhlanhla to invest – and then hold shares as security for those loans.
However, if the value of any shares held as security dropped below a certain percentage, the broker was entitled to demand additional security or repayment of the debt.
If Inhlanhla failed to comply, the broker would be entitled to take ownership of the shares held by it in settlement of Inhlanhla’s debt.
During the first quarter of 2020, the broker at that point held all the shares owned by Inhlanhla as security.
A substantial part consisted of shares in enX Group Limited, a public company listed on the JSE.
In May 2020, as a result of an unexpected, rapid and substantial decline in the price of the shares in the Inhlanhla portfolio, particularly the enX share price, Inhlanhla realised that the broker would be entitled to foreclose on the bulk of Inhlanhla’s securities.
Given the decline of the enX shares, which dropped from 700c per share at the beginning of April to as low as 320c per share on 14 May 2020, Inhlanhla was left with little option other than to relinquish its portfolio to the broker.
However, a couple of days after the broker assumed ownership of those shares, the share price rose significantly, meaning the broker benefited handsomely.
A rat?
Inhlanhla thought it smelled a rat.
By examining the trade in enX shares between April and June 2020, Inhlanhla believed that there were grounds to suspect market manipulation.
If that was the case, Inhlanhla might be entitled to restitution for the losses it suffered.
But it did not have access to the details of all the trades made in respect of the shares, and so it could not get conclusive proof to back up its suspicions.
And so, Inhlanhla filed a request for access to information on the identities of the buyers and sellers of the shares and the sale values with the Johannesburg Stock Exchange (JSE) under the Promotion of Access to Information Act (Paia).
They also narrowed down their focus to the key period from 3 May to 19 May 2020.
Public body
The JSE is a public body and gets its powers and responsibilities from the Financial Markets Act (FMA).
It – like all public and private bodies – is bound by Paia and so must disclose any information requested unless there is a legitimate ground (as set out in the legislation) for it to refuse the request.
The JSE refused the Paia request from Inhlanhla, stating baldly that the information sought contained personal, confidential or commercial information and it was prohibited by the FMA and Paia from disclosing such information.
As we have previously explained, the Information Regulator (IR) is a new body to which someone unsatisfied with a refusal of their Paia request can file a complaint.
Believing that the JSE was incorrect in refusing their request, Inhlanhla approached the regulator.
The Information Regulator investigates
The IR issued an investigation report, finding that the JSE had no justification in refusing the request, ordering it to disclose the requested information to Inhlanhla.
However, this order remains preliminary and Inhlanhla is waiting for a final decision from the IR’s enforcement committee.
In any case, lawyers acting for the JSE have already written to Inhlanhla, putting the company on notice that if the regulator rules in Inhlanhla’s favour, the JSE will go to court to review that decision.
This is why this story of one company seeking to get information from one public body in 2020 is relevant.
The experience of Inhlanhla is just one example that illustrates South Africa’s broken access to information system and how a culture of secrecy within our powerful institutions operates to stymie accountability.
Similar stories happen every day, all over the country, with all sorts of public bodies. Municipalities, national government departments and state-owned entities all regularly refuse Paia requests, often based on a misguided interpretation of the law.
Although the IR provides a useful mechanism before having to go to court, the delays in accessing the information sought are often ruinous or make the information eventually disclosed irrelevant because of the passage of time.
The JSE’s trite response
The reasons given by the JSE in its refusal of the Inhlanhla request are also reasons we see repeatedly.
One common refrain we hear from public bodies is that they cannot disclose the information because doing so would violate a statutory obligation they hold to protect personal, private or confidential information.
Often, the public body refers to the Protection of Personal Information Act. Here, the JSE also said that the FMA prevented it from disclosing any confidential information.
But this must be a misreading of the law, as Parliament could not have intended the FMA to act as a justification to refuse Paia requests. And, in fact, Parliament did not exclude Paia from the obligations under the FMA. The Act states that confidential information cannot be disclosed “unless disclosure is required or permitted in terms of a law or court order”.
Paia is one of those laws.
The IR, in its investigation report, confirmed that one of the objectives of Paia is to “promote transparency, accountability and effective governance”.
It is a vital cog in the constitutional framework which enables citizens to hold powerful institutions, government bodies and individuals to account.
The JSE’s reliance on the FMA is a betrayal of these principles.
The JSE’s stance is particularly galling, because as the IR’s investigation report points out, its claims of blanket confidentiality on the details of who trades shares in listed companies, exactly when they do it, and how much they pay, go to the heart of a transparent market – especially when there are claims of market manipulation.
As the IR report notes, our courts have emphasised the non-private nature of how companies conduct their affairs, especially when they involve publicly traded securities.
The FMA, the regulator said, also supports this principle by promoting transparency in the financial markets.
Early in South Africa’s constitutional democracy, the Constitutional Court, in Bernstein v Bester, explained that a company’s business was not a purely private matter.
The Supreme Court of Appeal, in Nova Property Holdings v Cobbett, confirmed that this principle extended to companies’ securities registers, which were “not inherently private”.
The IR investigation found that disclosure of information in this case was not unreasonable, as it pertained to market activities conducted under the regulatory oversight of the JSE.
Commercial harm?
The JSE also stated that it could not provide the information that Inhlanhla sought because to do so would violate the mandatory protection of commercial information of a third party.
This is also an oft-seen tactic – the bald claim that commercial harm would result from the disclosure of the information.
The IR stressed that a public body cannot make this claim as a “mere assertion” and had to provide evidence of how disclosure would actually harm the relevant third party.
But, despite the multiple court judgments explaining that disclosure of information must be the default and that access to information should be granted unless valid, specific and justified grounds for its refusal exist, public bodies like the JSE continue to issue bald refusals – and so the IR investigation rejected this claim, too.
The JSE also claimed it owed a duty of confidentiality to third parties and so could refuse disclosure in terms of Paia.
However, the JSE failed to seek third-party consent (as it was obliged to) and also failed to identify any agreement with third parties which provided such an undertaking of confidentiality – again, leading the IR investigator to reject the JSE’s reliance on the ground of refusal.
Public interest override
Paia provides that, notwithstanding other prohibitions, the public body must assess whether the disclosure of the records would reveal evidence of a substantial contravention of, or failure to comply with, the law and whether the public interest in the disclosure of the record clearly outweighs the harm contemplated in the grounds of refusal.
The IR investigation noted that Inhlanhla had furnished the JSE with an analysis of the Traded enX Shares over the period 1 April 2020 to 30 June 2020 and that it had clearly invoked concerns regarding “substantial contravention of the law”, in the form of market manipulation.
The IR took the view that the JSE had simply not properly engaged in the balancing exercise required by Paia to determine whether the public interest override would apply, and found that mandatory disclosure in the public interest was relevant or applicable under the circumstances.
Where to from here?
As mentioned earlier, the IR enforcement committee still needs to review and make a determination on the investigator’s preliminary report. After that, either party can take the IR decision to court – as the JSE has already indicated it will do if it is ordered to make the requested disclosures.
As the Inhlanhla story demonstrates, the process to challenge a refusal is so onerous and so lengthy that often someone seeking access to information is forced to give up.
It’s hard not to think that the public bodies know this and so know that – despite their misreading of the law and judicial precedent – their refusals of the public’s Paia requests will probably go unchallenged.
With public bodies defaulting to secrecy rather than transparency, and our access to information mechanisms taking years to resolve complaints, is it any wonder that we’re in an accountability vacuum in South Africa? DM
Caroline James is amaBhungane’s advocacy coordinator.