What was once SA’s largest online broker has resumed trading after a multi-year legal battle with regulators. From Moneyweb.
JP Markets, once South Africa’s largest broking firm with more than 300 000 clients, was fined R100 000 and had its Financial Services Provider (FSP) licence restored to it by the financial regulator – all in the same week.
“We’re happy to say we are back in business,” says CEO Justin Paulsen, who founded the company in 2016 when he was just 29.
“The Financial Sector Conduct Authority’s [FSCA] fine was against JP Markets, not against me in my personal capacity. That means my name has been cleared and I am back in the market. I am still fit and proper and a registered key individual,” Paulsen tells Moneyweb.
“It is also gratifying to note that our FSP licence has been reinstated. We have also applied for an ODP [over-the-counter derivatives provider] licence, which is pending.”
This ends a multi-year legal battle with the FSCA, which had asked the court to liquidate the company for operating without an ODP licence.
Read: FSCA was wrong to shut down JP Markets – Supreme Court
Online trading phenomenon
Paulsen appealed this all the way to the Supreme Court of Appeal (SCA) in Bloemfontein, which in 2022 overturned the lower court’s order to liquidate the company. His lawyers argued that the company was not insolvent, as it had cash on hand of R258 million at the time of the liquidation after all clients had been paid out their deposits.
The volume of client funds under custody amounted to R2.5 billion, all of which was returned once trades were closed out.
JP Markets grew into an online trading phenomenon, offering traders an opportunity to invest in more than 500 forex pairs, stocks, commodities and indices by purchasing a type of derivative called Contracts for Difference or CFDs, which track the price movements of actual financial instruments without the holder having to own the underlying asset.
Technical glitch
What appears to have aroused the FSCA’s suspicions was a series of complaints from JP Markets customers during the ‘Covid crash’ of March 2020.
Read: Behind the scenes at JP Markets
Due to a technical glitch at the service providing market price data, JP Markets continued trading although markets elsewhere in the world were subject to trading halts due to extreme price movements. Those JP Markets clients who lost money during this period attempted to claim their losses from the company, and then took their complaints to the FSCA.
“We will continue to be one of the main players in the industry, and we will do a formal launch once we have our ODP licence, which we need [to be able] to offer CFDs as a trading instrument. We now have our Category 1 FSP licence reinstated, which means we are free to operate again in the financial sector,” says Paulsen.
JP Markets’ legal battle with the FSCA was keenly observed in the financial sector as it raised important legal questions, such as can a regulator liquidate a company that is not insolvent?
Another question raised by lawyers for JP Markets was whether the regulator had jumped the gun in closing down a company that was in the process of applying for an ODP licence.
Read: JP Markets asks SCA whether regulator was right to shut it down when it wasn’t insolvent
Paulsen and his attorney Darren Hanekom believed they were assisting the FSCA with its requests for information when they were blindsided by the rush to court for a final winding up order.
“I am delighted that this is all behind us,” says Paulsen, adding that the company contemplated appealing the R100 000 fine for trading without an ODP licence, but in the end decided to pay it so that business could proceed without any further delays.
“It’s been 18 months since we won the court case, which is a long time to wait to be served the penalty, but be that as it may, we are keen to get back into business.
“This is a market we know well, and the rate of innovation around trading and financial products is staggering,” he adds.
“We intend to re-establish ourselves as the leader in terms of innovation and providing the market what it wants and we want to regain the market we once held.”
