A historical overview of the regulation of market abuse under the Securities Services Act 36 of 2004

AuthorHoward Chitimira
DOI10.10520/EJC166188
Published date01 January 2014
Date01 January 2014
Pages310-328
310
A historical overview of the regulation of
market abuse under the Securities Services
Act 36 of 2004*
Howard Chitimira
LLB LLM LLD
Lecturer, Faculty of Law, North-West University
OPSOMMING
’n Historiese Oorsig van die Regulering van die Mark Misbruik Onder die
Securities Services Act 36 van 2004
Die gevolge van die misbruik van die mark word reeds in ’n aantal van die
wêreld se finansiële markte gevoel. Suid-Afrika is nie ’n uitsondering nie.
’n Reputasie van hoë vlakke van die mark misbruik praktyke wat verband
hou met die Suid-Afrikaanse finansiële markte in die middel van die
1990's is ’n goeie voorbeeld. In ’n poging om die misbruik van die mark in
Suid-Afrika te bekamp, is die Securities Services Act 36 van 2004 verorden
ten einde al die gebrekkige bepalings van die Wet op
Binnekennistransaksies 135 van 1998, te herroep en te verbeter. Dit is
teen hierdie agtergrond dat hierdie artikel ’n oorsig bied sowel as ’n
ontleding van die doeltreffendheid van die mark misbruik regulerende
raamwerk in terme van die Securities Services Act 36 van 2004 te
ondersoek ten einde vas te stel of dit openbare vertroue van beleggers in
die Suid-Afrikaanse finansiële markte herstel het. Laasgenoemde word
gedoen om bewustheid te verhoog aan die kant van die betrokke
rolspelers ten aansien van die vraag of die Suid-Afrikaanse mark misbruik
wetgewing behoorlik toegepas word. Die artikel bespreek ook ander
maatreëls wat aangewand kan word, waar nodig, ten einde die betrokke
Suid-Afrikaanse mark misbruik wetgewing sowel as die toepassing
daarvan te verbeter.
1 Introduction
The effects of market abuse have been felt in a number of financial
markets globally.1 South Africa is not an exception.2 A reputation of high
1 Influenced in part, by Chitimira A Comparative Analysis of the Enforcement
of Market Abuse Provisions (LLD Thesis 2012 NMMU) 51-71. In this regard, I
wish to thank Professor Lawack.
1 Myburgh & Davis “The Impact of South Africa’s Insider Trading Regime: A
Report for the Financial Services Board” (2004-03-25) 8 http://
www.genesis-analytics.com/public/FSBReport.pdf (accessed 2013-02-09);
generally see Bhattacharya & Daouk “The World Price of Insider Trading”
http://www.faculty.fuqua.duke.edu/~charvey/Teaching/BA453_2004/BD_
Theworld.pdf (accessed 2013-06-19) & Van Deventer “Anti-Market Abuse
Legislation in South Africa” (2008-06-10) 1-5 http://www.fsb.co.za/public/
marketabuse/ FSBReport.pdf (accessed 2013-05-05).
2 Myburgh & Davis 8-13, Van Deventer 1-4.
*
Regulation of market abuse under the Securities Services Act of 2004 311
levels of market abuse practices associated with the South African
financial markets in the mid 1990s is a case in point.3 In an attempt to
effectively combat market abuse in the South African financial markets,
the Securities Services Act4 was enacted to repeal all the flawed
provisions of the Insider Trading Act5 and improve the enforcement of
the market abuse prohibition in South Africa. It is against this
background that this article provides an overview analysis of the
effectiveness of the market abuse regulatory framework under the
Securities Services Act to investigate whether it has enhanced market
integrity and public investor confidence in the South African financial
markets. This is done by examining whether the relevant market abuse
legislation is being properly enforced.6 This is also aimed at increasing
awareness on the part of the relevant stakeholders. To this end, the
article discusses other additional measures that can, where necessary, be
incorporated into the relevant South African market abuse legislation to
improve its enforcement.7 Notably, three forms of market abuse, namely
insider trading, prohibited trading practices (trade-based market
manipulation) and the publication of false, misleading or deceptive
statements relating to listed companies (disclosure-based market
manipulation), are prohibited in South Africa.8 However,
notwithstanding the anti-market abuse efforts introduced by the
Securities Services Act, more may still need to be done to increase the
number of convictions and settlements in cases involving market abuse
in South Africa.
3Idem 11.
4 36 of 2004, hereinafter referred to as the Securities Services Act and it
came into effect on 1 February 2005.
5 135 of 1998; hereinafter referred to as the Insider Trading Act.
6 See sub-paragraphs under paragraphs 2 1 & 2 2 below.
7 In spite of the paucity of convictions and settlements in civil and criminal
cases involving market abuse, the legislature has relatively managed to
improve and raise the South African financial markets up to a level that
would make them more comparable to the highest standards of similar
markets in the developed world and international best practice by enacting
some definitions as well as civil and administrative sanctions against
market abuse.
8 Ss 73; 75; 76 & 77 of the Securities Services Act; also see clauses 82; 84;
85; 86 & 87 of the Financial Markets Bill B-2011 (hereinafter referred to as
the Financial Markets Bill); clauses 80; 82; 83 & 84 of the Financial Markets
Bill B12-2012, hereinafter referred to as the Financial Markets Bill 2012 (I
have employed the termclause to refer to the provisions of both the
Financial Markets Bill & the Financial Markets Bill 2012) & ss 78; 80; 81 &
82 of the Financial Markets Act 19 of 2012, hereinafter referred to as the
Financial Markets Act and it came into effect on 03 June 2013.

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