Friday, January 21

FSCA was wrong to close JP Markets – Supreme Court


The Financial Sector Conduct Authority (FSCA) made a mistake in shutting down JP Markets, then SA’s largest online broker with more than 300,000 clients, according to a ruling issued Wednesday by the Supreme Court of Appeals (SCA).

The SCA overturned a 2020 South Gauteng Superior Court ruling for the liquidation of JP Markets and ordered the FSCA to pay the costs of two JP Markets attorneys.

Read: JP Markets Asks SCA If Regulator Was Right To Shut Down When Not Insolvent

“We are delighted with this decision, which naturally presents us with some options,” says JP Markets CEO and Founder Justin Paulsen.

“The ruling annuls the liquidation order and what is encouraging is that it was the unanimous verdict of the five judges of the SCA.

“Our business was illegally destroyed by the FSCA and there has to be responsibility for that,” he adds.

“We will discuss our options with our legal team, and that will include a possible claim for damages against the regulator and the revival of JP Markets as an online brokerage firm in SA.”

Read:

The ruling will also bring relief to 16 other online brokers that the FSCA told Moneyweb were under investigation for regulatory violations.

The FSCA says that it will comply with the SCA’s judgment and begin processing JP Markets’ application for an over-the-counter (OTP) product provider license, adding that: “JP Markets is not licensed as an OTP product provider, nor do you have the right to conduct the business activities of a supplier of OTP products, until the authority has made a decision on the status of your application. “(See full FSCA statement below).

FSCA ‘surpassed’

Paulsen and JP Markets argued in court that the FSCA had exceeded its regulatory powers by liquidating a company that was not insolvent and was attempting to enter the purview of the law by applying for an OTC derivatives provider. (ODP), which is required for trading a type of derivative product known as contracts for difference or CFDs.

CFD traders can track the price movements of real financial instruments without having to own the underlying asset. JP Markets clients could choose from over 500 instruments, from currencies to indices to individual stocks.

Darren Hanekom, attorney for JP Markets, says that all allegations made against JP Markets and Paulsen in the media and by the FSCA have now been dropped.

“JP Markets is acquitted for all intents and purposes and its status as Africa’s largest forex broker has been restored,” says Hanekom.

The SCA ruling determined that JP Markets had not been guilty of obfuscation, as claimed by the FSCA, nor did it present a systemic risk to its clients or the financial markets in general, and that there was no conflict of interest in its dealings with clients. .

Transparency

JP Markets was transparent in recognizing that it was the client’s counterpart in most trades, which means that it would win when a client loses a trade and vice versa. There was no attempt to hide this information.

Clients were divided into two categories: A-Book and B-Book. A-Book clients trade directly with what is known as a liquidity provider, which provides the bid spread on a trade.

The SCA ruling concerned JP Markets and its relationship with its B-Book clients, who made up the majority of the business.

Certain clients were flagged as ‘toxic’ due to the fact that they attempted to engage in collusive or prohibited trades that violated JP Markets terms and conditions.

The SCA found nothing objectionable in JP Markets’ practice of issuing differentiated spreads to clients who had been deemed “toxic.”

There was no obfuscation on the part of JP Markets in doing so, the SCA said, contradicting the lower court’s ruling.

Faulty decision

The SCA ruling says the decision to liquidate JP Markets was not “fair or equitable,” which is part of the legal test for the regulator to shut down any business.

“The starting point must be that JP Markets is a solvent company and a substantial concern. It employs 70 permanent employees at a monthly cost of more than 1 million rand, ”says the SCA ruling.

“It paid more than R 1 billion to thousands of customers during the three-month period prior to the request for liquidation.

“It was not disputed that his own cash capital amounted to approximately R220 million.”

‘Covid crash’ triggered the alarm

As part of its motivation for requesting the closure of JP Markets to the South Gauteng High Court, the FSCA noted numerous complaints received by clients during the ‘Covid collapse’ on March 16, 2020, a collapse serious enough to provoke a trade disruption at thousands of brokerages around the world.

Due to a technical error, JP Markets continued to quote the prices of trading instruments that were incorrect or absent. Affected clients returned to the positions they were in prior to the discontinuation of operations.

“While customers who had lost money were reimbursed, the gains of others were reversed, which, understandably, could have caused dissatisfaction and complaints,” the SCA ruling reads.

“JP Markets, however, noted that around 100 dissatisfied clients did not represent a large percentage of its approximately 300,000 clients. He said that he did his best to retain clients in a very competitive environment. It said it would be counterproductive to arbitrarily deny withdrawal requests or cause unnecessary delays, and that it did not.

“Therefore, the evidence did not establish that JP Markets business constitutes a systemic risk for its clients or for the financial markets in general. It follows that the only relevant factor that remained was that JP Markets had been doing business as ODP [OTC derivative provider] Unlicensed. In this sense, in the first place, it was not irrelevant that he was not the only one doing it. ”

In the course of the legal process, it emerged that few of JP Markets’ competitors had applied for an ODP license and that the FSCA had not taken action against any of them.

Vindicated: Justin Paulsen, founder of JP Markets. Image: supplied

FSCA responds to SCA judgment

The FSCA has taken note of the Supreme Court of Appeal (SCA) decision to overturn the judgment of the Gauteng Division of the High Court, which had allowed the liquidation of JP Markets (Pty) Ltd. The FSCA has also taken note of the Honorable Court interpretation with reference to the principle of justice and equity.

The Authority intends to abide by the ruling and will now proceed with the processing of JP Markets’ application for an over-the-counter product provider (OTP) license and consideration of all pending enforcement actions.

The FSCA draws the public’s attention that JP Markets is not licensed as a provider of OTP products, nor does it have the right to conduct the business of a provider of OTP products, until the Authority has made a decision on the status of your application. .

Members of the public should always verify that an entity or individual is registered with the FSCA to provide financial intermediation and advisory services and what category of advisory it is for which the entity is registered. There are cases where people sign up to provide basic advisory services for a low-risk product and then offer services of a much more complex and risky nature.

The FSCA reminds clients who wish to perform financial services with an institution or person to check with the FSCA in advance for the toll-free number (0800 110 443) or the [its website here] if said institution or person is authorized to provide financial services.


www.moneyweb.co.za

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