NZINGA QUNTA: Last week noticed the arrest of Glen Point Capital co-founder Neil Phillips for alleged foreign-exchange market manipulation. Another agency suspended staffers who had beforehand labored with him. Let’s get extra on the story with Andre Cilliers, who’s the director of TreasuryONE.
Andre, an excellent night to you. Can you simply summarise what occurred again in 2017 that led us up to now and the eventual arrest of Phillips?
ANDRE CILLIERS: Good night to all of the listeners. He offered an choice and the strike worth with a barrier. Now it’s an fascinating product, and I’m not fairly positive that I can simply clarify it right here, nevertheless it merely signifies that the choice solely grew to become legitimate if the rand reached a stage of R12.50 on a particular day, or at any interval in the course of the lifetime of the choice.
Now, they bought near the train of the choice or the expiry of the choice, and it was in a interval the place clearly the choice was kind of accomplished with the understanding that if Cyril Ramaphosa got here in and was elected because the President of the ANC – in different phrases the continual president of South Africa – then that might push the rand to ranges of *** energy, and that might then have that barrier kick in.
That we are able to recall didn’t occur. The optimism wasn’t that good. But then they collaborated with one other overseas financial institution which then offered giant quantities of {dollars} out there. Now, the interval the place they offered was a interval of very low liquidity and, due to that low liquidity, it was attainable to push it in order that the choice [would get] triggered, which meant that he would’ve made some huge cash.
NZINGA QUNTA: Some huge cash, certainly. I feel the determine I noticed was over $15 million, after which an unidentified consumer bought round $4 million. So he was allegedly not working alone, however roping in different monetary establishments and different folks. Just discuss to me about that, and the way prevalent market manipulation is – whether or not it involves overseas change or different points.
ANDRE CILLIERS: Well, it’s tough to govern the foreign-exchange market until you’re employed in collaboration with various different folks, as a result of it’s a market the place the volumes that undergo it are completely immense. [They are] very, very giant volumes and also you want thousands and thousands and thousands and thousands and thousands and thousands of {dollars} or euros, or regardless of the forex could be, to commerce to affect it. And you could do not forget that for those who simply try this to govern it to a sure stage, you then want to have the ability to get that quantity of {dollars} again out of the market as a way to sq. up your positions, as a result of it’s a slightly speculative transaction that takes place at that cut-off date.
So, sure, it’s attainable and we all know that there’ve been discussions and it’s nonetheless ongoing – that of attainable collaboration between South African banks, even method, method again within the historical past of the rand buying and selling, which continues to be being investigated. But it’s not very straightforward to do it and never one thing that occurs on a steady foundation.
NZINGA QUNTA: I keep in mind when the previous president Thabo Mbeki additionally had that rand inquiry into the autumn of the rand. And there have been, as you’ve mentioned, different problems with banks being accused of market manipulation. Would you say, though it’s such an irregular prevalence, maybe emerging-market currencies are extra weak to this type of market manipulation, if somebody can pull it off?
ANDRE CILLIERS: Yes. Emerging markets are extra weak to that, and the straightforward cause for that’s that rising markets are in a variety of instances additionally locations the place the banking system just isn’t as developed as first-world international locations; and secondly, the volumes of trades of currencies are pretty low, and with comparatively small quantities you could possibly then manipulate the forex to both weaken or strengthen considerably.
South Africa is slightly totally different within the sense that the South African rand is without doubt one of the most-traded currencies on the earth. So the volumes going by the markets and in addition our banking system and the banks, and the merchandise which might be out there, are very, very developed. So sure, nonetheless attainable, however much less seemingly due to the scale and the way developed our market is .
NZINGA QUNTA: So it’s much less seemingly. It’s not a one of many high three or, if any, high 10 dangers when it comes to what may occur. That being as it might, is there something that may or must be accomplished to attempt to safeguard currencies from some of these behaviour or, as a result of it’s occurred so occasionally, is it only a hazard that will come and cross?
ANDRE CILLIERS: It’s actually tough to cease it fully or to attempt to regulate it as a result of, for those who had been to try this, then you would need to kind of undergo each transaction out there. And now, while you try this, and there’s collaboration between a variety of banks, all these trades are being accomplished with varied banks. So, even for those who consider the transaction that we’re talking of, the quantity talked about that was offered to govern the rand to a sure stage was within the order of $725 million.
But now that $725 million wouldn’t have been offered to at least one financial institution. It would’ve been offered – I’m positive that if we go to the buying and selling record of that financial institution, than you’ll discover that they dealt with Standard Bank, they dealt with Absa, they dealt with Barclays, they dealt with JP Morgan, they dealt with Goldman Sachs, they dealt with Standard Chartered. I can proceed with a listing of names.
So they might’ve accomplished comparatively small quantities with a variety of banks, however the quantity would’ve nonetheless gone by the market. And then there’s that spinoff of 1 place cancelling the opposite, and banks buying and selling out with one another, as a result of there may be a variety of liquidity that got here into the market. So it’s tough. You must undergo each financial institution and attempt to hint each deal from each native financial institution, each overseas financial institution, each commerce that went by, add it up and see who was the counterparty. That’s just about an impossibility to do.
NZINGA QUNTA: I perceive. Andre, the US is prosecuting this matter, and there are different costs towards Neil Phillips, who’s a Glen Point Capital co-founder. What do you suppose might occur on this case?
ANDRE CILLIERS: Well, I feel he can be discovered responsible, and given a really hectic high quality, and doubtless some jail time could be on the playing cards for him. And he would even be suspended and clearly by no means have the ability to commerce once more.
NZINGA QUNTA: Andre Cilliers, the director of TreasuryONE, has been becoming a member of us and unpacking the story of Neil Phillips, who has arrested for alleged foreign-exchange market manipulation. Thanks a lot on your time on the SAfm Market Update with Moneyweb.
