In a first for the local financial services sector, a diverse collaborative industry work group established following the inaugural SA Market Surveillance Conference hosted by Investec, held last year, has developed a draft industry Code of Conduct to guide financial institutions and align with international standards to bolster market surveillance in the country.
The need to develop the SA Market Surveillance Code of Conduct emerged as a key objective during the conference.
“The local financial services sector has faced numerous challenges in its ability to monitor, detect and prevent various forms of market abuse, such as insider trading, price or market manipulation, and the dissemination of false or misleading statements,” explains Happy Shihau, Head of Compliance at Investec Corporate and Institutional Banking. “These deficiencies erode financial market and investor confidence, hampering investment, wealth creation and economic growth.”
In an effort to maintain the integrity and stability of the financial system, the SA Market Surveillance Conference identified multiple requirements, such as improving awareness of industry best practices, implementing stricter controls, and increasing the number of skilled surveillance analysts in the sector.
Establishing a SA Market Surveillance Code of Conduct emerged as a critical requirement to promote fit and proper conduct across the financial services sector while setting higher industry standards to protect the local market against abuse, manipulative, anti-competitive and illegal trading practices, which could lead to potential exclusion from global institutions.
“With so many industry role players working to improve transparency, accountability, and ethical behaviour in a well-functioning market, a Code of Conduct establishes a set of guiding principles for all financial market participants to follow,” continues Shihau.
Numerous industry workshops took place following last year’s event, where major role players from major financial institutions, regulatory bodies and other appropriate authorities collaborated to develop the code. The working group included representatives from Investec, the Johannesburg Stock Exchange (JSE), the South African Institute of Financial Markets (SAIFM), and FSCA, among other contributors including some of the large South African banks and brokers in the market.
“The resultant document stems from extensive consultation between these stakeholders to define the standards that signatories are expected to uphold when participating in the South African financial market,” adds Shihau. “This SA Market Surveillance Code of Conduct is a strong indicator of the local financial industry’s commitment to ensuring that it maintains fair and transparent financial markets that safeguard investor funds.”
The Code of Conduct also seeks to support legislation aimed at improving transparency and enhancing controls. While voluntary and not legally binding, this proposed SA Market Surveillance Code of Conduct will complement changes to legislation and help to enhance and reinforce the regulatory environment.
The SA Market Surveillance Code of Conduct details how the members of an exchange should conduct themselves in an ethical, fair, transparent, and responsible way that promotes the integrity and proper functioning of South Africa’s financial markets and reduces systemic risk, by ensuring all participants effectively manage their market abuse risk.
It also covers various aspects, including communication surveillance, chat room principles, social media monitoring and oversight, trade surveillance, remote working, algorithmic trading governance process, and aspects of market conduct, such as dealing with confidential information, mitigating financial crime risk, and sharing information.
Themba Maseko, Market Surveillance Senior Analyst (Compliance) at Investec Bank, adds that the South African financial sector also has an important role to play in driving global best practices as the world becomes more integrated.
“Local financial markets should adopt transparent and fair market practices to protect the integrity of our sector. By guiding all stakeholders to comply with relevant regulations while adopting best practices, the code will improve market integrity and contribute to building a positive reputation for the South African financial market. This should give international investors the confidence to invest in the country so that everyone benefits from knock-on effects like economic growth and job creation. We all have a role to play and it’s important we acknowledge it,” elaborates Maseko.
Investec will host the second Market Surveillance Conference on 24 - 25 July 2024 to build on the advances made during the inaugural event and keep steering the industry towards the vital reforms needed to modernise the regulatory framework.