WikiFX report: SOUTH AFRICA’S IBS CAN BREATHE EASY AS JP MARKETS FINALLY BITES THE DUST

During the past few years, FinanceFeeds has championed the cause of the highly sophisticated introducing broker networks that exist in South Africa.

An entrepreneurial nation, South Africa has a tremendous amount going for it as a genuinely good quality place to do business in most sectors, its diversified economy, good quality banking system and strong regulatory structure combine with a very friendly ‘can-do’ approach which has led to a very well organized set of portfolio managers, algo and signal providers, along with regional representatives being the mainstay of the FX industry in the country.

Since 2016, FinanceFeeds has been active in holding conferences in Johannesburg, engaging some of the countrys most prominent IBs with good quality retail brokerages, as well as traveling to meet on an individual basis with many of the leading introducing brokers and algo developers in South Africa, having built a very strong rapport with them.

Effectively, we know every IB in the Johannesburg region personally, and are privy to a lot of information regarding the IB structure.

One such aspect is that there are a few companies that have approached the South African market and have managed to gain huge market coverage, yet left a trail of destruction behind them, often intentionally. These names keep coming up in conversation between us and IBs on a regular basis.

One of the most notorious is JP Markets, an unlicensed FX brokerage about which every single IB we have ever met has shared several tales of woe, ranging from inability to withdraw client funds to the in-house zeroing of customer accounts, leaving the IB liable, and answerable to his customer.

Indeed many IBs have expressed that they would like to see the company banished from the market. Well, today is that day.

Often, unlicensed firms manage to get around regulatory requirements simply by not being regulated, therefore not under the remit of any regulator at all, and then approach clients in specific places. In the case of JP Markets, South Africa was their cash cow, and in many of these situations the governments of the nations being targeted do nothing, saying that they have no jurisdiction.

South Africa, however, has acted differently and has put a stop to JP Markets activities by freezing its South African bank account, forcing the company into administration.

Sources in Johannesburg today told FinanceFeeds that the authorities have not only frozen JP Markets bank accounts but have also ordered the company into forced liquidation of all assets.

The regulator warned clients that no activity would be possible from the companys bank accounts for a fixed period.

“This means that JP Markets will no longer be able to operate on these [bank] accounts and they will remain frozen for a specific duration in terms of legislative parameters,” the FSCA said. That is putting it politely.

According to the regulator, JP Markets “contravened financial sector laws, including but not limited to running an unlicensed over-the-counter derivatives provider (ODP) business”.

Over-the-counter derivatives are securities usually traded directly through a dealer network, rather than being listed on a central exchange. This means that the parties to the transaction can be exposed to a higher risk.

The companys licence was suspended due to “reasonable belief that substantial prejudice to clients or the general public” could occur if JP Markets continued to deliver financial services, the FSCA said.

It warned the public that derivatives-platform trading is high-risk and suitable only for investors with “the required knowledge, skills and experience”.

“The public should carefully consider whether trading in such financial instruments is suitable for them,” said the regulator.

In this action, the regulator has taken this course in the best interests of retail clients, with the regulator being concerned that JP Markets had been trading against its clients rather than executing trades in a live environment via the real FX market, however FinanceFeeds understands that it was not just client facing malpractice that was rife within the company concerned.

Some examples of recent unpleasant circumstances were discussed during a private seminar in Johannesburg, such as brokerages jettisoning IBs with recurring commissions so that they dont have to pay the commission, leaving client bases transferred directly to the brokerage without actually remunerating the IB, which in effect is an unofficial theft of intellectual property, and also IBs having to manage the relationship between giving their client the best execution whilst being remunerated on a volume basis by b-book brokerages.

As the regulators honed in on JP Markets, the firms management appeared to have taken issue with the impending suspension. A petition against the sanction – which is no longer available to view – was posted on its social media at the time.

On the company‘s website, a licence issued by the Financial Services Board, the FSCA’s predecessor, is dated effective from 2016.

This is a good move, and clears the way for good quality FX brokerages to enter South Africa and bring the good quality IB network on board.