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

• Date: 01 January 2014
• DOI: 10.10520/EJC166188
• Author: Howard Chitimira
• Published date: 01 January 2014
• Pages: 310-328

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 term “clause” 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.