FELICITY DUNCAN: Well, you've no doubt heard that in the USA President Barack Obama and his team put together a proposal on new regulation for financial markets and institutions. The proposed changes included new powers for some regulators, possibly new capital requirements for banks, all sorts of things. We have JSE CEO Russell Loubser and Robert Foster, the head of the Alternative Management Association, on the line to discuss the changes and more specifically the South African context.
    Let me start with a question for you, Robert. Very briefly, in South Africa what are the existing regulatory structures for alternative investments like hedge funds?

ROBERT FOSTER: Thanks very much for the opportunity. Certainly all hedge-fund managers are fully regulated under our FAIS legislation, which is something that we've had in place for many years now, and they were particularly given an additional licence requirement about two years ago, which specifically looks at the requirements for hedge funds, your qualifications, your experience and the like. This is something that our European and American counterparts only now are starting to look at. So we are a little bit ahead of our time...

FELICITY DUNCAN: Are there any gaps in the regulation of these alternative investments?

ROBERT FOSTER: There are, in that unlike most other, shall we say, pooled investments which fall under some form of legislation such as the Collective Investment Schemes or the Long-Term Insurance Acts, hedge funds are unregulated at a product level currently. But what we are busy doing as an industry, we are engaging proactively with the Financial Services Board to reach a regulated product environment. Again, something that's fairly front-footed and something that our American and European counterparts aren't yet considering. They are still trying to grapple with regulation of the managers, and not getting down to the product level.

FELICITY DUNCAN: That's pretty reassuring. Russell, CEO of the JSE, on the JSE market what are the structures for just the vanilla stock exchange market? If something goes wrong in a trade, what can investors do?

RUSSELL LOUBSER: Well, we've got a number of safeguards in place. First of all, the JSE itself guarantees all trades that go through the central order book. That obviously has to be the situation when you have a central order book where there is anonymity, both pre and post trade. Somebody has to guarantee the trade, and the JSE does that. The JSE has a substantial balance sheet but, in addition to that, we also have a guarantee fund, which is completely ring-fenced. In addition to that we have the member itself, the member of the JSE, which has to be a separate subsidiary, a separate company with its own capital, and we monitor the capital adequacy of that broking member on a daily basis.

FELICITY DUNCAN: So there's quite a good set of things in place. Through the JSE there are some markets that don't have this kind of regulation. I'm thinking here particularly of single-stock futures.

RUSSELL LOUBSER: Yes?

FELICITY DUNCAN: Now, what is the situation on that market? What are the recourses for investors there?

RUSSELL LOUBSER: Well, single-stock futures -we mustn't confuse them with contracts for difference - they are similar, but they are different. But the one market, contracts for difference, is completely unregulated at this stage, whereas single-stock futures are on the JSE as part of the exchange, they are on the exchange. So they are subject to surveillance, to start off with. Secondly they are margined on a  daily basis - it can even be intraday if necessary. And then you have clearing members standing behind that. So that is a very well-surveilled and a very well regulated part of the market. That is single-stock futures.

FELICITY DUNCAN: Right. Robert, looking at the stuff coming out of the US, what Obama's team has put together, is there anything in there that would be a lesson for South Africa when it comes to regulating non-stock markets, when it comes to regulating, for example, credit default swaps and so on?

ROBERT FOSTER: I think we are watching with interest to see what the Americans are doing. The Americans tend to shy away from very robust regulation and probably have one of the more freer markets in the world, but this is a massive, massive disruption they are going through. So I think the microscope is out, and we will watch with interest. There are just so many different lobby groups and so many interest groups that have been affected by these proposals, and it is quite early days. On Bloomberg they have been saying there is so much interest and so much debate going on that it's likely that most of what Obama has been proposing will get through, but not necessarily in its purest form. And that will help the debate which we are going to watch on the sidelines. I think in South Africa, and Russell has alluded to it, we have a very, very robust environment, both at the stock exchange and the financial advice level. One of the interesting things at the financial advice level is that they are only now talking about stockbrokers having to provide more full financial advice or recommending financial instruments, whereas this is something that has been a  requirement in South Africa for many years. I think we can take encouragement from our regulators who've been very front-footed, and probably saved us from quite a lot of the mess that our American counterparts have found themselves in.

FELICITY DUNCAN: Reassuring words there from Robert Foster and Russell Loubser.

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