Opinion: JSEblunder. Monopoly gone nuts


Monopolists have a way of occasionally losing touch with reality, and proceed to dig holes where previously there was smooth-running roadway. This largely captures the near catastrophic situation that emerged at the Johannesburg Securities Exchange (JSE) – a monopoly for more than a century – towards the end of July.

To be precise, it happened on 21 July, when a stockbroker, in an email to its clients, asked: “Record foreign buying of SA equities has been widely reported in the press the last few weeks – but is the data reported by the JSE correct?”

If foreign buying had continued at the rate postulated by the JSE, foreigners would have owned the JSE two or three times over by Christmas!

According to the JSE, reported the broker, “the exchange had experienced 34 consecutive days of net buying of SA equities by foreigners. In June alone, the data suggests the JSE saw record net inflows of R63.8 billion. This would far surpass inflows in any previous month on the equity market, particularly strange in light of the Brexit in June.

“We temporarily stopped reporting the data on our daily morning report due to our suspicions. We engaged with the JSE to share the results of our data investigation and in a meeting yesterday with the JSE it was confirmed that the current reports seem to be erroneous. The JSE is investigating the matter.”

It did, and on 25 July, a Monday, there was a flood of headlines, such as this one from CNBC Africa: “JSE hit by R98bn computer blunder”. Ouch.

“A computer glitch at the JSE” caused the bourse to misrepresent foreigners as net buyers of SA equities
to the tune of R98bn from May to 20 July.

The JSE blamed a programming error (which, note, continued day after day, week after week, under the noses of more than 500 extravagantly paid staff at the JSE) that affected the manner in which it extracts data from its core transactional systems.

Instead of reflecting purchases by non-residents of domestic shares totalling R98bn it should have reflected an outflow of R36bn over the period.

On the Thursday prior to the JSE’s reawakening, the Reserve Bank, the central bank, had, in its monetary policy committee (MPC) statement, painted a positive picture of the rand that it said was supported by the global search for yield. The bank said that since the beginning of June, net purchases of equities and bonds by nonresidents of R107.3bn (whoops!) had been recorded.

On Monday the bank was quick to say that it had taken note of the JSE error: “The JSE has reassured the Reserve Bank that steps were being taken to prevent a reoccurrence.” So much for the supposed “global search for yield”.

The JSE “glitch” has, somehow, impacted monetary policy, which has consequences for every single person in the country.

On the Friday, the Financial Services Board, which oversees the JSE (at least in theory), released a statement to the effect that it “is looking into the circumstances of the lead up and causes of the error, and will be taking appropriate steps in this regard.”

According to a report on Moneyweb, Nicky Newton-King, the JSE’s CEO, was “however doubtful that investors would have based trading decisions on this data as it was distributed to a relatively small audience.”

Is the entire country, as impacted by decisions of the SARB a “small audience?” More to the point, how can the head of the JSE venture that specific data is only made available to a “small” audience?

Why, then, bother to gather, analyse and distribute data if you don’t expect it to affect trading decisions?

In the world of open markets, the word “small” is fraught with difficult connotations, not least the possibility of “inside” information available only to some, who can trade to their benefit to the detriment of others. What was Newton King thinking?

We are dealing with smart people, according to the numbers, anyway. The JSE’s annual report for 2015 shows that it employed 506 people (more than double the number of 10 years previously) and paid them a total of R496 million. This rounds off to average remuneration per employee of about R1m a year, which must rank the JSE as one of the most incredibly generous employers in the world.

Yet not one of these people had the time, inclination or savvy to peruse outgoing data, to give it a “common sense” test.

There are other questions over the apparent lack of talent at the JSE. The bourse’s major asset is an electronic trading platform which is headquartered at the London Stock Exchange.

The JSE is busy migrating its various trading platforms to the London Stock Exchange’s system. The JSE is one of more than 40 organisations and exchanges around the world that use the LSE’s MillenniumIT trading, surveillance and post trade technology.

Why does the JSE battle to produce data with integrity, when it is using such a well-proven system?

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