FSB and JSE to scrutinise wild trades prompted by news of Viceroy report
The Financial Services Board (FSB) and the JSE are scrutinising trades prompted by speculation that Viceroy Research will release a negative report about one of the country’s stocks, which caused some shares to crash more than 20%.
The FSB was working with the JSE to review trading activity and determine whether a formal investigation is warranted, FSB spokeswoman Tembisa Marele said in an e-mailed response to questions. The FSB’s mandate includes probing insider trading, price manipulation and false reporting.
Shares of some of the country’s largest real estate investment trusts (Reits) fell by a record on Thursday as talk swirled that one of them would be targeted in Viceroy’s next research report. Aspen Pharmacare Holdings, Africa’s biggest drug maker, plunged on January 9 amid rumours it is in Viceroy’s sights. The stock has since recovered all those losses after Aspen CEO Stephen Saad came out in defence of his company, saying its earnings were transparent.
Very little is known about Viceroy, which refers to itself as a US-based short-seller, or the people behind it, who describe themselves on their website as "a group of individuals who see the world differently". Viceroy gained attention in SA after releasing a report detailing some of Steinhoff International Holdings’ woes shortly after the retailer said it was investigating accounting irregularities that caused most of its value to be wiped out.
"Viceroy encourages people not to speculate on the identity of any companies we are researching and we advise caution in trading on gossip," the company said in a statement, issued from a Gmail account. "Viceroy complies with the laws and does not release research or discuss our focus prior to publication."
The JSE is reviewing the trading activity in Aspen and the property stocks because of "the material price movements in recent days that appear to be unrelated to any information disseminated by the relevant companies", the JSE’s director of market regulation, Shaun Davies, said in an e-mailed response to questions. "Any form of market abuse that is identified will be appropriately dealt with."
The 21-member FTSE/JSE Africa Listed Property Index plunged the most since December 2015 before paring losses to trade 2.1% down by 2pm on Thursday. Resilient plummeted by record 22% before trading 3.3% lower. Greenbay Properties, Fortress and Nepi Rockcastle all recovered from declines of as much as 20%.
"Nobody knows who Viceroy is," said Sasfin Wealth deputy chairman David Shapiro. "They’re an anonymous bunch of people; they may be absolutely 100% right, on the other hand, they could be 100% wrong."
Traders were taking advantage of the rumours "and plugging the market without really applying common sense", he said. The property counters "are overvalued, but so is our market. We’ve got a hothouse of debt. Everyone is now panicking."
Steinhoff has lost more than 80% of its value since it said there were anomalies with its numbers on December 5.
"The market is going through each company with a fine-tooth comb at the moment," said Petri Redelinghuys, founder stockbroker Herenya Capital Advisors. "Following the Steinhoff collapse no one wants to be caught on the wrong side of that. It’s actually insane what’s going on with a company that can fall as much as 20% and then recover within three or four hours."
Following the stock’s initial steep decline, Fortress said on Thursday it expected to increase its interim dividend for each B share by as much as 15.5%. "Trading in the current financial year has been consistent with the prospects previously communicated to shareholders," the property company said.
A representative for Resilient said its stock was moving on market speculation of the possible Viceroy report, adding that the Reit had not been contacted by the research firm. Calls to Greenbay’s offices were not immediately answered. Nepi CEO Mirela Covasa said the company was looking into why its shares were declining.
"The mere existence of rumours, which some investors decide to act on, does not in itself point to any misconduct," the JSE’s Davies said. "There would only be cause for concern if a person knowingly spread false information about a listed security which affected the value of that security."