Why Allan Thomson resigned from the JSE

From the Alec Hogg archives – November 8, 2011.  

MOOI RIVER – You could have blown me over with a feather this morning. The press release from the Johannesburg Stock Exchange is blunt: “Allan Thomson, previously director of equity derivatives trading, was dismissed from the JSE on Friday 4 November 2011. This followed an investigation into irregular share trading on his own account.”

The way my brain interpreted those words, the release may as well have read: “Your good friend Allan, the guy you’ve overnighted with, who has been to your home and even your wedding, has been fired. He’s blown one of the top jobs at the JSE by trying to make a fast buck.”

It’s always worse when the news is about someone you know. Remember our collective outrage when the Indian police dared accuse Hansie Cronje for cheating? And how shocked we all were when the clean-cut boy from Bloem admitted they were right? Stomach-punched stuff. A feeling shared today by many who know the man who developed the JSE’s derivatives trading operations, including the wildly popular Single Stock Futures market.

Allan and Sarah Thomson have been houseguests of ours for years. Of the type where you kiss and hug welcomes SA-style (lips). Not superficial European brushing of cheeks.  We’re close enough for them to pop in for a cuppa en route to their annual South Coast holiday. And for me to take down the golf clubs every December for the once a year nine holes at Port Shepstone or Umdoni. Golfing left the agenda when we moved to Mooi River almost two years ago. But with Allan it’s an education in the nature around us – I swear he knows the name of every tree in this country.

This ethical, deeply principled man who holds a black belt in karate and a mind made to handle complexity, is one of the most disciplined people I know. In that way a lot like his boss, outgoing CEO Russell Loubser. He doesn’t gossip. Doesn’t discuss work. Doesn’t criticize. Yet he’s been dumped from a close-knit team like the drunken lecher exposed at the Christmas Party. What the heck is going on? Has the world gone crazy?

No it hasn’t. Not yet anyway.

The way Allan explains it; he and his team were terribly frustrated at the way some traders were operating outside of the Futures Market. These traders were making their own deals with buddies outside of the JSE’s trading hub. Not disclosing their intentions to the general market opened up all kinds of potential abuse. Thomson’s team came up with an idea to force them into the central clearing book. It involved placing their own orders on the system, forcing the manipulators to unwittingly deal with someone other than their buddy. Before long, Thomson and Co surmised, the errant traders would realise the JSE was onto them and come back into the official fold.

Thomson tells me he initially thought the plan was brilliant. His team worked out the trades and he placed the orders on his personal account. Once the deals were done, the trades were immediately reversed, and the counter party warned not to repeat the transgression. Seeing the error of their ways, they’d now come into the fold. And help ensure a more transparent, more efficient market the JSE’s Futures Team strive towards.

Looking back, Thomson admits he was “incredibly stupid” and admits to being caught up in the chase. As a director he is well aware of the JSE’s strict rules about trading futures or shares for own account. And also knew before any trading, permission was needed. Also, he knows that catching miscreants is the remit of the JSE’s Surveillance Department. Not the Futures or any other team, no matter how noble their intentions.

Thomson says: “I broke the rules. I left Russell (Loubser) and Nicky (Newton-King) no option. They had to dismiss me. In their position I’d have done the same. There was never any intention of making money from this. It was done to try force traders to operate more honestly, to put their deals into the market first and not collude outside the system. But the way I went about it was all wrong. It was a terrible error of judgment. I deserve to be fired. I’m really sorry that ten good years at the JSE had to end this way.”

What about extenuating circumstances? Did the JSE have to make it so public? Through a bald statement that Thomson’s enemies could embellish any way they choose?

Tough as it is for my pal, the JSE did the right thing. Corporate hypocrisy has reached a sickening level. Someone, somewhere needed to tell the truth. Loubser has never been one to mince his words. So that it should fall to him is appropriate.

Departing executives are almost always officially described as being off to “pursue personal interests” when insiders know they’ve been fired because of major cock-ups. Of course, outsiders are none the wiser and the overblown, overpaid incompetents invariably end up being paid ludicrous asking prices by another set of shareholders.

Rather let’s have more straight talking Allan Thomsons than a continuation of the mealy mouthed approach of so many others who plead the avoidance of “potential law suits” as motive for their obfuscation. The boards of Murray & Roberts, Reunert and any number of other recent examples might want to take note. Allan will land on his feet. He’s likely to start his own business, to paddle his own canoe. And his mistake will make him stronger. That’s not the universal result when most executives are asked to clear their desks in a hurry.

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