Market Conduct - Insider Trading and other Market Abuse

• Trading members must consider client order circumstances before entering them into the JSE trading system.
• The trading member should take reasonable steps to ensure such orders don't breach Section 80 of the Act, which concerns prohibited trading practices.
• Trading member employees involved in processing client orders and derivative transactions on the JSE trading system must:
  • Be familiar with market abuse provisions in Sections 77-80 of the Act.
  • Receive adequate training to recognize and avoid transactions that could lead to breaches.
• Compliance monitoring procedures must include monitoring orders and transactions executed on the JSE, with the goal of identifying and addressing potential breaches of Sections 78 and 80 of the Act.
• Trading members aren't expected to monitor every order, monitoring procedures should aim to detect activity that appears as a blatant breach of Sections 78 and 80, considering factors like:
  • Parties to the transaction.
  • Perceived intention of the parties.
  • Frequency and pattern of transactions.
  • Effect on market prices or volumes.
  • Size and timing of the transaction.
  • Combination of these factors.

Market Abuse

• Consists of three prohibited conducts under the Financial Markets Act:
  • Insider trading.
  • Prohibited trading practices (market manipulation).
  • False, misleading or deceptive statements.

Insider Trading

• Occurs when an insider with inside information deals directly or indirectly in securities for their own account, committing an offense.

Prohibited Trade Practices

• Involve knowingly creating a false or deceptive appearance of demand, supply, or trading activity, or an artificial price for a security.
• It's an offense to participate in practices if one reasonably ought to have known they were participating in the prohibited practice.

False Statements

• Relate to making or publishing statements/promises/forecasts about securities traded on a regulated market or the past/future performance of a company whose securities are listed, that are:
  • False, misleading, or deceptive due to any material fact that the person knows or should reasonably know.
  • Rendered false, misleading, or deceptive due to the omission of a material fact, which the person knows or should reasonably know.
• Someone unaware a statement was false, misleading, or deceptive must publish a full and frank correction without delay upon becoming aware.

Penalties for offenses.

• Those found guilty of insider trading, prohibitive trading practices, or making false/misleading statements may face a fine not exceeding:
  • The equivalent profit made/loss avoided.
  • Up to ZAR1 million (adjusted annually for CPI), plus three times the amount of the profit made/loss avoided.
  • Interest.
  • Cost of suit/investigation costs.
  • Any commission/consideration received for disclosure/encouragement.

Market Manipulation

• Trade-based: Involves actions/activities that send false/misleading signals to influence financial instrument prices, requiring automatic, system-based monitoring.
• Information-based: Disseminates false/misleading information via media, requiring process-based, human monitoring.

Market Abuse Offences: Section 78

• Insiders(knowing they have inside information) who trade directly/indirectly on regulated markets, or use derivative instruments relating to the information, commit an offense.
• An insider can only commit an offence if they prove that the insider:
  • became an insider after the instruction to deal was given to an authorised user and the instruction was not changed;
  • Was acting in pursuit of a transaction where all parties possessed the same inside information, trading was limited to these parties, and the transaction didn't aim to benefit from price movement.
• Any person who trades for an insider, directly or indirectly, using insider information commits an offense if they knew the person was an insider. This does not apply if the trade was done on behalf of someone who had any of the defenses available.
• It's an offense for insiders who disclose inside information to someone else.An exception applies if the disclosure was required for proper performance of the person's office or profession and the information was identified as inside information.
• It's an offense for an insider to encourage or discourage another person from dealing in securities related to the inside information

Section 79. Publication

• Defines "inside information," by including but not limited to when:
  • Information published by relevant regulated market rules.
  • Information is held public by virtue of an enactment.
  • Information is easily accessible to those who are likely to deal in any securities:
    • Relates to the information.
    • Relates to an issuer.
  • Information is derived from data that has been made public.

Section 80. Prohibited Trading Practices

• Prohibits a person from knowingly using or participating in any practise which has created or is likely to create:
  • A false or deceptive appearance of the demand for, supply of, or trading activity in.
  • An artificial price for, that security.
• Approval order by entering an order which effects no change of beneficial ownership, approving successive higher or lower prices, or entering an order at the end of a market for the purpose of closing or maintaining the closing price is a contravention of this.

Section 81. False, misleading or deceptive statements, promises and forecasts

• Prohibits making or publishing these to do with securities traded on a regulated market and relating to the past/future performance of a company:
  • Any statement or forecast that's false/misleading about a material fact, which the person knows or reasonably should know.
  • Any statement which omits material facts to render it false.
• Anyone who makes a statement unaware of the fact it is false, misleading, or deceptive must publish a full and frank correction without delay.

Section 82. Liability resulting from insider trading

• Administrative sanctions for those in contraventions of sections 78(1), (2) or (3) of the Act include:
  • the profit made or loss avoided;
  • an amount of up to R1 million, adjusted to reflect the CPI;
  • interest; and
  • cost of suit, including investigation costs.
• Contravening sections 78(4) or (5) of the Act gives rise to administrative sanctions that do not exceed:
  • the equivalent of the profit the recipient of the information made;
  • an amount of up to R1 million adjusted for CPI;
  • interest;
  • court costs;
  • the commission or consideration received for giving the info.
• The other person is jointly liable with the insider when section 78(1), (2), (3), (4) or (5) is liable as an insider.
• All recovered amounts are deposited in a trust fund as part of the proceedings, being used to distribute all the claimants.
• Any amount is to be subject to the Authority, unless the claims officer in his or here discretion determines that the claimant should receive a lesser or no amount.
• The common law principles of vicarious liability apply to this section.