CFD’s and South Africa

Trading in South Africa is largely dominated by Single-stock futures with the majority of trading activity on the JSE (Johannesburg Stock Exchange) being the trading of these future contracts. In 2007, Single-Stock futures accounted for 80% of all contracts traded on the exchange making South Africa one of the worlds biggest Single-Stock futures market places. However the dominance of Single-Stock futures is increasingly being brought into question with increased demand from consumers for Contracts for Difference.  

However there is a caveat  currently over the counter instruments such as Contracts for Difference aren’t available over an exchange as in Australia nor are they regulated by South Africa’s financial regulators the Financial Services Board. This introduces the problem of counter party risk in a serious way. This has led many South African traders to be very cautious about which CFD brokerage they trade with and in what size they trade. However there has only been one example where the company defaulted on its obligations though it was a pretty big default to the tune of 167 Million Rand. Which for many makes trading CFD’s a much more risky business than trading the already regulated Single-stock futures market.  

The news isn’t all bad for South Africans wishing to trade Contracts for Difference, as number of regulated European brokerages have made the foray into the South African marketplace. Not so long ago well known industry player IG Markets completed their acquisition of South African Contract for difference brokerage Ideal Markets. Ideal Markets now trade IG Markets South Africa with the company operating an office in South Africa.  A number of other European regulated brokerages also accept clients from South Africa meaning that traders are able to trade Contracts for difference through a regulated brokerage.  

However steps are being made to regulate the South African derivative markets and the proposed Financial Bill of 2011 would take the first steps toward regulating the over-the-counter derivatives market. Though at the time of writing their has been no change regarding the regulation of Contracts for difference which are still an unregulated financial instrument. 

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