This article was originally published on in August 2010.


South African financial markets have developed significantly in the past few years notwithstanding the ongoing market abuse. About twenty-five percent of market abuse cases in South Africa result in the conviction of an offender. A recent adjudication in relation to market abuse in South Africa was published earlier this year, which led to the Financial Services Board's (FSB's) Enforcement Committee imposing a fine of R2 million on a trader for an alleged share price manipulation. The unlawful trading took place during January and February 2009. The Enforcement Committee which adjudicates alleged stock market offences came to the conclusion that the trader knowingly used "manipulative, improper, false or deceptive trading practices, when acting as a derivatives trader".

One of the objectives of the Securities Services Act, 2004 (SSA) is to increase confidence in South African financial markets. The SSA came into effect on 1 February 2005 and it prohibits three primary forms of market abuse, namely insider trading, prohibited trading practices (market manipulation) and the publication of false, misleading or deceptive statements relating to listed companies (false reporting). Cases relating to insider trading or prohibited trading practices are published on the Financial Services Board's website (, for the public to view.

Procedural aspects with regard to market abuse in South Africa

The Financial Services Board (FSB) is an independent institution established by statute to oversee the South African Non-Banking Financial Services Industry in the public interest. The FSB acts in accord with various other foreign regulatory financial services authorities, which assist the FSB in trailing certain activities of market abuse, like insider trading suspects who use other jurisdictions to contravene South African law.

The Directorate of Market Abuse (DMA) is a committee of the FSB that is mandated to investigate market abuse and it may in appropriate instances take enforcement action. In South Africa, the DMA therefore plays an integral part in relation to the investigation and prosecution of market abuse.

The DMA has the power to interrogate certain individuals, summons any person who may be able to furnish any information in relation to the alleged market abuse and has the powers to search for and seize records and documentation when dealing with market abuse investigations. The DMA has an investigation team which is employed by the FSB consisting of staff members with accounting, legal, banking, insurance, fund management, and forensic skills, amongst others. The expertise of the investigation team is necessary because of the nature of the investigations and the complaints.

Market abuse transactions are also criminal offences in terms of the Securities Services Act, 2004 (SSA). The Directorate of Public Prosecution (DPP) in South Africa normally fulfils the roll of instituting criminal action against any person guilty of market abuse.

Generally, complaints will come from the Johannesburg Stock Exchange. After the investigation is completed, the alleged offenders and potential witnesses are ordered to appear in an interrogation room at the offices of the FSB. The alleged offenders and potential witnesses are then required to answer questions under oath. The procedure will therefore continue along the lines of a trial in which legal representation is permitted. After the alleged offenders and potential witnesses have been questioned, the information is placed before the DMA for their consideration.

The Directorate of Market Abuse (DMA) has to consider the investigation report and has to make a decision, whether or not to institute legal action. The DMA may elect to refer the case to the Enforcement Committee of the FSB or it may elect to hand over the matter to the prosecuting authorities for consideration. The Enforcement Committee must also, upon receipt of the documents, furnish the alleged offender with the documents. The respondent therefore has an opportunity to reply to the allegations after which the Enforcement Committee will then adjudicate the matter. The respondent is entitled to appeal against the decision made by the Enforcement Committee.

The sanction for a person found guilty of market abuse in a criminal court is a fine not exceeding R50 million or to imprisonment not exceeding 10 years, or both. The Directorate of Market Abuse (DMA) may refer cases dealing with insider trading to the FSB's Enforcement Committee. The Enforcement Committee may order that that the alleged offender pays the FSB the profit made or the losses circumvented as a result of the wrongful transactions and a penalty of up to three times such amount. Theses funds are normally distributed, after the recovery of costs, to any person who may have been prejudiced by the wrongful transactions, where possible.


There were twenty-six cases of insider trading and market manipulation cases during the period 2009 and 2010. The FSB's Enforcement Committee has taken a firm approach by instituting harsh penalties on alleged market manipulators during this period. The present approach by the FSB appears to have reduced the number of instances where investors suffer losses whilst the manipulators make ill-gotten gains.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.