The High Court of SA has granted an application to have derivatives and futures trader Dealstream Securities liquidated.
Dealstream, which dealt primarily in contracts for difference (CFDs), stopped dealing after failing to meet obligations for transactions done on its behalf on the JSE in late September.
Around 2 700 investors, including the High Court applicant, Control Instruments Automotive, as well as Rand Merchant Bank and Vox Telecom, have been affected by Dealstream's demise. Hundreds of individuals have also been affected through the online trading platform the company provided.
A CFD is an agreement to exchange - at the closing of the contract - the difference between the opening and closing price of a share, multiplied by the number of shares detailed in the contract. The method allows investors to profit from share movements, without owning shares outright.
Local and international financial reports show trading of CFDs has become a popular mechanism to deal in futures and derivatives.
Gone AWOL
Dealstream was placed under curatorship last week, after it became apparent the company's founder, Russell Leigh, had fled the country. The company is also accused of misappropriating funds that had been deposited into a trust account, which were meant to cover the risk of CDF trading.
Vox Telecom executive chairman Tony van Marken says the company supports Control Instruments' decision to pursue liquidation. However, he adds the outcome was inevitable. “The curatorship would have led to the same outcome, namely liquidation”
He says Vox hopes the process will lead to some clarity on what happened at Dealstream and hopefully it will recover any funds it had lost. While Vox shares have been dramatically affected by the incident, CEO Doug Reed has issued a statement to reassure shareholders.
He says the company has emerged stronger from the collapse of Dealstream Securities. "The open derivatives position that has been hanging over us like a sword of Damocles for the past six months is effectively gone."
Reed adds that 90% of the derivatives have been taken out of the market and will be converted to shares. “With those cut out of the equation, we're actually better off because the exposure has been reduced drastically."
The company says no changes have been made to operations and it continues to thrive in its local market position.
Online traders
Rand Merchant Bank (RMB) is the clearing member for Dealstream's South African Futures Exchange activities.
The bank has followed JSE rules and taken over Dealstream's portfolio at a market value of around R1 billion, as well as the remaining initial margin. It has essentially become an RMB portfolio.
The bank has also closed down Dealstream's online trading platform and made it clear that Dealstream's clients will not be able to retrieve lost funds from RMB.
Related stories:
Dealstream updates trading system
Vox reassures on Dealstream collapse
Vox mulls legal action
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