| Thu 9 Oct 2008, 7:30 | | FSR - FirstRand - Financial Services Board (FSB) R |
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FSR
FSR
FSR - FirstRand - Financial Services Board ("FSB") Report On Dealstream
Securities (Pty) Ltd
FirstRand Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1966/010753/06)
ISIN: ZAE000066304
Share Code (JSE): FSR
Share Code (NSX): FST
FINANCIAL SERVICES BOARD ("FSB") REPORT ON DEALSTREAM SECURITIES (PTY) LTD
Dealstream Securities (Pty) Ltd ("Dealstream") was a non-clearing member of the
JSE and an authorised user as defined in section 1 of the Securities Services
Act. A non-clearing member trading SAFEX instruments has to place margin at the
JSE through a clearing member. RMB acted as the clearing member for Dealstream
in respect of its JSE Single Stock Futures dealings. It did not know and did
not have a relationship of any nature with Dealstream`s clients. RMB`s only
dealings with Dealstream was as clearer of Dealstreams futures contracts. RMB
placed Dealstream in default on 22 September 2008 because Dealstream was unable
to meet its margin obligations which RMB as its clearing member had an
obligation to guarantee.
The FSB have issued an inspection report on Dealstream. This investigation was
conducted by the FSB at the request of the Registrar of Securities Services and
Financial Services Providers and the report formed part of the documents
presented in a hearing in the Pretoria High Court on Tuesday 7th October 2008
for the appointment of a curator for Dealstream.
As a claimant against Dealstream, RMB fully supports the FSB`s investigation of
Dealstream and has, to date, provided the FSB with details of transactions
between itself and Dealstream but has not yet had the opportunity to engage with
the FSB over its findings. Should the FSB choose to conduct any further
investigation, RMB will cooperate fully.
The FSB report indicated that Dealstream started failing to meet its margin
calls from the 2nd September 2008 and that RMB had allowed the situation to
continue despite Dealstream not being able to meet its obligations. In terms of
our normal credit procedure, it is not common to immediately place a customer in
default following a breach. The common practice for a clearing member is to
first try to understand the cause of the breach and establish with the customer
what can be done to remedy such a breach which may often be as innocent as an
administrative error. Under such circumstances, the clearing member would
provide the margin to the JSE on behalf of the non clearing member. This
effective provision of credit is secured by the non clearing member`s initial
margin placed with the JSE in terms of JSE regulations and which is intended to
cover normal market movements. In general, a customer is only placed in default
as a last resort.
During the period of 2nd September to 22nd September, meetings were held with
Dealstreams management to discuss payment of their margin obligations. Some
additional margin was placed with RMB. Furthermore, the required level of
variation margin decreased and increased with market movements and position
close-outs and at a time in this period Dealstream was up to date with its
margins. When it finally became clear that Dealstream could not continue to
meet its commitments and that the market prices had moved dramatically to
effectively eliminate the security provided by the initial margin, RMB took the
decision on 22nd September 2008 to place Dealstream in default in terms of its
future clearing agreement and JSE rules governing the default of a member.
The report also indicated that RMB had, as a result of Dealstream`s default,
incurred losses of R401.7 million which is not correct. The financial
consequences for RMB of Dealstream`s default are as follows:
- RMB`s gross claim against Dealstream was R401.7 million upon assuming
Dealstream`s positions after default
- Dealstream had an initial margin with the JSE of R187.2 million which, when
offset against the gross claim, resulted in RMB having a net claim against
Dealstream to the value of R214.4 million, the recoverability of which will
only be determined once the financial position of Dealstream has been
established.
- In accordance with its future clearing agreement and in conjunction with
the JSE, RMB took over the futures positions of Dealstream. These
positions amounted to an equivalent physical value of R1.14 billion.
- RMB has subsequently sold the portfolio down to R742 million and did not
occur any losses in the sell down.
- Included in the remaining portfolio are significant holdings in Vox Telecom
Ltd (VOX) and Simmer and Jack Mines Ltd (SIM). These investments will be
managed by RMB as strategic holdings with a longer term investment horizon
in order to fully realise fundamental value.
Sandton
9 October 2008
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 09/10/2008 07:30:02 Produced by the JSE SENS Department.
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