Fines have worked well for punishing insider traders, says FSB heavyweight
With questions around trade in Telkom shares by suspended chief financial officer Jacques Schindehutte swirling in the media, the role of the Financial Services Board (FSB) in policing insider trading is back in the spotlight. Biznewz.com's editor-in-chief Alec Hogg asked Solly Keetse, head of the FSB Directorate of Market Abuse, why we aren't seeing dodgy share traders being put behind bars. Solly reckons fines, of up to R24m, work well as a punishment. Keetse explains the investigative role of the FSB.
Do you think people who profit from insider trading should go to jail? Or do financial penalties do the job of deterring and sanctioning unfair share trades? Share your views, below this transcript. – JC
ALEC HOGG: On the back of the Telkom situation where it has been hinted that the company Chief Financial Officer Jacques Schindehutte was involved in an illegal trade of company shares, we wanted to explore insider trading. What procedures do the authorities follow and how does such a case evolve? Joining CNBC Africa is Solly Keetse, Head of Department in the Directorate of Market Abuse at the Financial Services Board. Solly, it has been confirmed in the last half hour by Telkom in a Sens announcement, that the Johannesburg Stock Exchange has passed on to yourselves an enquiry into the allegedly illegal trade by Jacques Schindehutte – given that its now been brought into the public. Can you confirm that the investigation is taking place and how long it may last?
SOLLY KEETSE: Alec, I cannot speak on behalf of the JSC, I am aware of the media reports of the alleged insider trading by the CFO of Telkom. Other than that as I said I cannot speak on behalf of the JSE.
ALEC HOGG: Sure. Telkom say's it's happening, the JSE said they didn't want to discuss it, but it is on senz now, but the point is – how does something like this get processed? Lets say, don't use Schindehutte as an example, use Mr. XYZ who has been illegally trading in shares according to the markets abuse department at the JSE, how would it be brought to your attention?
SOLLY KEETSE: Ok Alec, what I should start to do is to explain to you our processes, how we operate. The FSB being the regulator of the non banking financial sector. We've got a quality called the directorate of market abuse, which is a committee of the FSB responsible for combatting market abuse. So in terms of our processes, our mandate in terms of the financial markets act, is to investigate and decide on cases of market abuse. There is a surveillance element to looking after the markets, and that aspect is done by the JSE because they have sophisticated IT systems for surveillance of the markets for integrity and so that everything is happening in an orderly fashion. So we don't do surveillance at the FSB, all we do is the investigation and the committee that decides is as I've mentioned the directorate of market abuse.
ALEC HOGG: So if I understand you correctly Solly, the JSE's department that checks all the trades will find something it believes is suspicious, it will then investigate it, put a case together and send it to you.
SOLLY KEETSE: No, well they do surveillance
ALEC HOGG: And once it gets to you what's the process then?
SOLLY KEETSE: Well, as I said, our mandate is to investigate. Anybody can report anything that seems suspicious. We get anonymous tip offs through the FSB, an anonymous tip-off line through the JSE and through other medium's as well
GUGULLETHU MFUPHI: Hi Solly, I just want to understand that if someone is found guilty of insider trading, just how heavy are the implications on the individual's career?
SOLLY KEETSE: Insider trading is an offence. If you look at section 78 of the financial markets act, it does criminalize the offence of insider trading. So there are penalties, which can be imposed on a person who is found guilty of insider trading.
ALEC HOGG: The problem is no one ever has been. No one's gone to jail.
SOLLY KEETSE: That is not true. If I can give you a bit of history, and go back to the insider-trading act of 1998, the remedies that were available to us as the insider-trading directorate, which is now the directorate of market abuse, we had a criminal function and a criminal directives civil action. When that Act was repealed in 2004 by the Security Services Act, we had a criminal function – a derivate civil action and also a civil criminal action. So as we would appreciate Alec, because insider trading is an offence in South Africa we have these three remedies, which are, in terms of the current legislation act, we can either try the perpetrator either on the basis of a criminal function, a civil sanction or an administrative function. What has worked well over the years for the FSB is an administrative sanction and we've imposed penalties of up to R24 million.
ALEC HOGG: Ya, we've seen those, there's been no admission of guilt from the other party but I guess the point is well made, if you're prepared to pay R24 million for an insider trading allegation, you must have a pretty poor case. Thank you for clarifying much of that for us. That was Solly Keetse, Head of Department in the Directorate of Market Abuse at the Financial Services Board.