JSE to probe trading activity around Gordhan recall

The Johannesburg Stock Exchange (JSE) is looking into abnormally high levels of securities trading that took place ahead of and on the day that former Finance Minister Pravin Gordhan was recalled from an investor roadshow in London

Analysts raised the alarm last month after noticing a conspicuous spike in foreign exchange futures contracts trading on 27 March.

Intellidex analyst, Stuart Theobald, at the time said that anybody who could have been privy to the news of Gordhan’s abrupt recall would have had a big chance to make a handsome profit. To be exact, he says that investors who bought foreign exchange futures contracts with a R42 million investment would have made a profit of over R72 million in a matter of days.

Now Shaun Davies, the JSE’s director of market regulation, confirms that an investigation is underway.

“The news precipitated material moves in the value of numerous listed securities, including currency futures. Once the JSE has finalised its review, it will forward its findings to the Financial Services Board,” he was quoted telling Business Day.

READ MORE: The curious case of unusual forex trading ahead of Gordhan recall

While Davies wouldn’t be drawn on which securities in particular were being investigated, but speculation is rife that it will include banking stocks.

Last month, Theobald said that there had been a 15% and 167% increase in the number of June 2017 and December 2017 future contracts traded on 27 March – a total of 105 000.

“The maths is a little complicated, but it works like this. You buy future which gives you long exposure to the US dollar. Then if the dollar appreciates relative to the rand, you get to keep the difference,” Theobald penned in a note.

“Because the holder of the position is sitting with dollars, a weaker rand means they’ve made a profit in rand.”

The rand fell around 2% on the day the news broke and continued to decline, losing 8% of its 18-month high.

Theobald said that is was also important to note that the futures contracts were opened on the morning that Gordhan was recalled, but just ahead of the announcement.