BOE to act against JSE after trade confusion


Johannesburg — In a first for South Africa markets, BoE Securities said yesterday it would lodge a claim against the JSE Securities Exchange SA after the JSE reversed trades in Dimension Data warrants earlier this week. BoE, which was forced to reverse a purchase of the warrants on Monday, said it was likely to lodge a monetary claim. This claim would possibly be a percentage of the profit it would have made if the deal was allowed to stand.

BoE’s head of derivatives, Arthur Buchner, said the sum involved was relatively modest and that the firm was challenging the stock exchange on a matter of principle. JSE senior adviser (surveillance) Peter Redman said he did not believe that BoE had a case. He was not aware of an impending claim and as far as he knew, “they don’t have right to appeal”.

The controversy that surrounds correction trades emerged earlier this week when some brokers apparently missed an announcement by Deutsche Bank that it was consolidating Dimension Data warrants (1DDT). Despite announcements on the JSE’s stock exchange news service and in the press last week, the brokers failed to adjust their trades. They continued to sell unconsolidated warrants to parties that thought they were buying the new version.

This resulted in 14-million warrants being sold, though only 2- million were in issue. The JSE eventually reversed the trades on Monday, to the irritation of a number of brokers who believe the system needs to be reviewed to make a distinction between honest mistakes and acts of negligence.

Buchner said the stock exchange was also at fault because its broker-dealing accounting system failed to keep up with the consolidation. “By Friday it had still not been picked up and we bought only on Monday. We believe the JSE has been inefficient in this case,” Buchner said.

He said it was unfair that brokers who made mistakes were subject to fines, while the JSE could cover its own mistakes by simply reversing trades. “It’s a one-way street at the moment and there is no justice.” Other traders said the system of correcting trades was applied unfairly and could be used to hide negligent behaviour. “People make mistakes and those should be corrected. But negligence, where brokers fail to follow what is happening in the market, is another story,” SG Securities warrants head Gizelde Brady said.

Some felt the same principles were not applied to everybody. Buchner said BoE had had a similar experience about three years ago with an unbundling exercise in which it was caught on the wrong side of a trade that resulted in a R250000 loss that was not reversed.

Posted in Market commentary

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