Business Ethics: Conduct and Principles

Ethical Conduct of Business

• Section 74 outlines the code of conduct for regulated persons.
• Section 75 describes the principles of conduct
• Section 81 concerns false, misleading, or deceptive statements, promises, and forecasts.

Section 74: Code of Conduct for Regulated Persons

• A registrar can prescribe a code of conduct for authorized persons and other regulated individuals after appropriate consultation.
• The code binds authorized users, participants, clearing members of independent clearing houses, regulated persons, and their officers, employees, and clients.

Section 75: Principles of Code of Conduct

• Authorized users, participants, and clearing members of independent clearing houses must act honestly and fairly with due skill, care, and diligence in the interests of clients.
• They also must uphold the integrity of financial markets and use resources and tech effectively.
• Regulated persons must act honestly and fairly with due skill, care, and diligence in the interests of clients.
• They must also uphold the integrity of the financial markets.
• The Code can outline additional provisions.

Section 81: False, Misleading or Deceptive Statements, Promises, and Forecasts

• No one can directly or indirectly make or publish statements, promises, or forecasts that are false, misleading, or deceptive.
• This extends to statements that omit material facts, rendering them false, misleading, or deceptive.
• If someone becomes aware of a false, misleading, or deceptive statement, they must promptly issue a full and frank correction.
• Contravening subsection (1) or failing to comply with subsection (2) constitutes an offense.

General Standards of Conduct

• Standards of integrity must be upheld.
• General conduct towards clients must be implemented.
• Disclosures to clients must be made.
• Maintenance of records must be actioned.

Standards of Integrity

• Members must maintain high standards of integrity and fair dealing in conducting business.
• Circulating false or misleading information is prohibited.
• Members must not knowingly support attempts to manipulate the market or influence individuals improperly.
• Activities must align with the Act and respect the JSE's reputation.
• Members should avoid dealings that could defame the JSE, its officers, or employees.

General Conduct Towards Clients

• Members must act fairly and honestly in their dealings.
• Members must act with skill, care, and diligence while looking out for client's best interests.
• Exercise independent professional judgment.
• Act promptly, following client instructions responsibly.
• Conflicts of interest should be avoided.
• If conflicts cannot be avoided, ensure fair treatment through disclosure, confidentiality, or declining to act.
• Members must not unfairly prioritize their interests over those of clients.

Disclosure to Clients

• Representations and information provided to clients must be factually correct.
• Communications should be in plain language and avoid confusion or misleading statements.
• Disclosures need to be adequate and appropriate, considering the client's knowledge level.
• All amounts, values, charges, fees, remuneration, or monetary obligations must be reflected in specific monetary terms.
• If these figures are not reasonably pre-determinable, the basis of calculation is required..
• Information should not be duplicated unless there are significant changes or the service requires it, in which case, changes must be disclosed.
• Full and accurate information about fees and charges must be disclosed.
• A member cannot reveal client-confidential information without consent or unless required by law.
• Clients must be informed of restrictions or limitations affecting their asset access.

Maintenance of Records

• Maintain proper, complete, accurate, and secure records of services to clients.
• Procedures and systems to store and safely retrieve records are required.
• This includes communications, transaction documentation, contractual arrangements, and client details.
• Client records can be in printed, electronic, or voice-recorded formats.
• Members can outsource record storage but must provide records for inspection within seven days.
• Instructions to execute transactions must be kept for at least six months, other client records for five years.
• Transaction records, according to FICA, must be kept for five years

Advertising

• Advertising must align with the profession, and to the public, and be consistent with dignity and good taste.
• It should not make unfair comparisons or disparage JSE products or those of others.
• Advertising must adhere to legality, decency, honesty, and truthfulness, avoiding testimonials or endorsements.
• Advertising cannot contain fraudulent, untrue, or misleading statements, promises, or forecasts.
• Performance data must include source and date references.
• Illustrations, forecasts, or hypothetical data must include stated assumptions, clarify that they are not guaranteed, indicate dependence on variable factors.
• If advertising contains a warning about JSE authorized investment, it should be prominently displayed.
• When past performance is referenced a warning needs to be published that this is not necessarily indicative of future performance.
• A warning that no guarantees are provided should be published.

Advertising Material

• Advertising must provide accurate, complete, and unambiguous details.
• It must also emphasize risk of loss and uncertainty.
• A distinction between fact and opinion is compulsory.
• It should not be comparative to other members.
• Members must only use designations recognized by and state their membership of the JSE in publicly available material.

Use of Name and Logo

• Members must only use designations recognized by and state their membership of the JSE in publicly available material.

Market Recommendation - Disclaimer

• Published comments relating to the trading results of a listed company, or which may influence the price of the equity securities of any company need to include the name(s) of the person who compiled it.
• Newsletters, circulars, or publications with opinions on listed companies in which the member has an interest need to disclose the existence of such interest.
• If a director of the member is a director of the company, this needs to be disclosed.
• Transactions resulting from unsolicited calls are permitted only if the member followed rules 8.10.3 and 8.130

Unsolicited Calls

• Transactions may occur from unsolicited calls if client requirements are disclosed and advice is given on JSE authorized investments.

Other Standards of Conduct

• Personal account trading
• Inducements
• Transactions in BEE securities
• Dealings with a discretionary FSP
• Conducting business with a nominee
• Transactions
• Best executions
• Members commissions and fees
• Contract notes
• Management of JSE authorised investments
• Advice on JSE authorised investments
• Management of Corporate actions
• Money broking transactions
• Authorisation of investments other than equity securities under other regulations
• Client statements

Personal Account Trading

• Controls and procedures need to be established to prevent conflicts of interest between employees' transactions and clients' interests.
• These controls must undergo review to identify conflict.

Inducements

• Members must ensure that they or anyone acting for them does not offer or accept incentives that conflict with their duties.
• Valuable consideration that does not directly relate to or assist in the provision of regulated services constitutes a prohibited inducement.
• Disclosure is required of any agreement, the nature, extent, value, and frequency of valuable consideration.

Client Acceptance and Maintenance Procedures

• Members have to gather and maintain sufficient information to identify each client account and each account operated by a client.
• This includes the client, the account holder of a controlled client account, and the person responsible for placing instructions.
• Minimum information includes full name and identity or registration number.

Client Information

• Members need to get physical and postal addresses and phone numbers.
• The following legal status of the client needs to be identified:
• Private individual
• Company
• Close corporation
• Private trust
• Partnership
• Joint venture
• Syndicate
• Investment club
• Pension or provident fund
• Mutual fund or collective investment scheme
• Government agency
• Public utility
• Religious, educational, or welfare organizations

Additional Client Information

• Information about those responsible for account instructions is required.

Record Confirmation

• The member needs to obtain written confirmation of client information and bank details and record it.
• Clients must advise members of changes to their information in writing.

New Client Authentication

• Members needs to authenticate the identity of new clients before executing any transactions.

Dealings With a Discretionary FSP

• Members cannot transact with those who require authorization as a discretionary FSP without verifying their authorization.

Conducting Business With a Nominee

• Operation of a controlled client account on behalf of individual or group, requires approval under section 76 of the Act.

Transactions

• Transactions needs to be completed equitably and in accordance with the Act, rules, and directives.
• Members assures that employees handling transactions are fully authorized.
• Telephone conversations can be recorded by the member.

Best Executions

• Members need to apply the principle of best execution.
• Transactions need to be conducted through the JSE equities trading system wherever possible.

Members' Commissions and Fees

• A member can charge different transaction fees
• A mutually agreed commission can be charged for agency transactions in JSE authorized investments.
• Mutually agreed fees can be charged for principal transactions in JSE authorized investments.
• Members cannot profit from agency transactions beyond the agreed commission.
• ISPs can charge negotiated fees for investment services.
• Fees can be related to asset performance or structured on other reasonable bases.
• Interest from JSET on client funds must be paid to clients after deducting administration fees, with advance disclosure of fee determination and periodic statements.

Contract Notes

• Members need to issue or transmit contract notes for transactions in equity securities via the JSE system before 12h00 the next business day.
• Contract notes/confirmations must include:
• Date and time
• Identification number
• Member's charges
• Price and total consideration
• Settlement date
• Whether acting as agent or principal
• A member and client must prior agree to allocate transactions to a suspense account, which can be in the client's name or their agent's.
• Suspense accounts in the client's name can be used by the member's client is placing instructions in respect of one or more underlying accounts controlled by the client
• For average price allocations across underlying accounts/beneficiaries, contract notes or confirmations must disclose that the price is an average price as well as offer to provide any details on request.

Money Broking Transactions

• Money broking requires specific authorization from the JSE.
• Arrangements must be recorded in a written mandate.
• The client needs to have accepted the terms of the mandate
• Money Broking members can open accounts with banks.
• A fund can be pooled in the member's name, or separate statements can be sent in the name of the client.
• Transactions need to occur in accordance with the Banks Act of 1990.
• Bank statements forwarded to the client must reflect amounts invested and withdrawn, dates and terms of investments, and actual fees charged.
• Inability to deposit client funds promptly requires these be deposited with JSET pending deposit with the relevant bank.

Acceptance of Cash

• Receiving or accepting any cash deposit exceeding R5,000 by the member is prohibited.
• "Cash" refers to paper/coin money.
• Avoid compliance by preventing the accumulation of more than R5000 in multiple cash amounts.

Client Statements

• Statements that comply with the rules must be provided to clients:
• Regular statements issued at least every 3 months.
• Monthly for derivative instruments.
• Shorter intervals on client request.
• Other intervals for professionals.
• Client statements should detail the portfolio's composition, JSE authorized investments, changes, and market value.
• Information for reviewing the account and making decisions should be provided, this can be as per 8.180.4.

Alternate Delivery Of Material

• Information may be reported during or at the financial reporting date.
• A client statement needs to go out to the client in writing.

Summary of ethical guidelines for business professionals. Includes conduct for regulated individuals, honesty, fairness, and market integrity. Covers code of conduct for authorized individuals and regulated persons.