FSB probes unusual forex trades on Gordhan recall

Cape Town – The Financial Services Board (FSB) said it is investigating unusual trading in foreign exchange futures contracts that spiked at the time of former finance minister Pravin Gordhan’s recall from London in March.

“The FSB can confirm that it is investigating unusual trading in foreign exchange futures contracts after receiving a report from the JSE,” it said in a statement on Thursday.

“The FSB’s department for market abuse … is currently conducting an investigation into possible insider trading in certain foreign exchange futures contracts before the recall of … Gordhan from office.

“This process emanated from the report received from the Johannesburg Stock Exchange on 11 April 2017 into the matter.

“Upon completion of its investigation, the market abuse department will compile a report with its findings for the directorate of market abuse, which may refer the matter to the enforcement committee of the FSB for enforcement action to be instituted against the offender/s if it believes that the Financial Markets Act has been contravened.

“Alternatively, the directorate of market abuse may close the matter if it believes that there is no or insufficient evidence of insider trading.

“If the matter is referred to the enforcement committee, the determination of the enforcement committee will be published once the matter has been finalised.

“The duration of the investigation will be determined by the complexity of the investigation.”

On May 2, Solly Keetse, head of the FSB’s department of market abuse, said the FSB was analysing the article published by Stuart Theobald of Intellidex, which sparked the issue.

Theobald's research showed there was a clear leap on the day Gordhan was recalled in two foreign exchange futures contracts open on the JSE, namely that of June 2017 and December 2017.

There was a 15% increase in the number of June contracts and a 167% increase in the number of December contracts on that Monday.

Essentially one buys futures which gives you long exposure to the dollar. Then, if the dollar appreciates relative to the rand, you get to keep the difference.

"For one thing, the volume in the June contract, where most of the action was, spiked early on Monday morning. There is also a lot of action around 10.30 when the news broke and a large sale on Tuesday afternoon," said Theobald.

"This assumes that the contracts were opened before the Gordhan news broke. There is circumstantial evidence supporting the view that it was before the news."

“Using JSE-listed instruments was a pretty dumb move,” he explained. “A trader wanting to profit from such advance knowledge would be better able to do it offshore, where it is much harder to see big movements in market exposures."