Veracity Markets is ordered to cease trading by FSCA.

The Financial Sector Conduct Authority (FSCA) has ordered Veracity Markets, which has around 400 000 clients, to cease trading due to its use of illegal over-the-counter (OTC) derivatives and potential violations of other financial regulations.

This seems to be a part of the internet broking sector's cleanup. The FSCA previously disclosed to Moneyweb that it was looking into 16 internet brokers for possible financial law infractions.

It earlier stopped trading at JP Markets and filed a court petition for liquidation. Although the court rejected the liquidation action, JP Markets cannot start trading again unless it receives an over-the-counter derivative provider (ODP) license.

Read:

Supreme Court: JP Markets' closure by FSCA was improper [Oct 2021]

One of the biggest online brokers in South Africa is Veracity Markets, which acts as the legal representative of Nirvesh Financial Services. Nirvesh Financial Services holds a Category 1 financial services provider (FSP) license, which ens it to provide advice and intermediary services on specific instruments.

Veracity Markets, according to the FSCA, lacks the necessary ODP license to provide trading in goods such contracts for difference (CFDs).

With CFDs, a sort of derivative instrument, a trader may profit from changes in an underlying asset's price without actually holding the stock, index, or other underlying asset. Leverage is frequently added by CFD providers to these transactions, magnifying profits and losses resulting from changes in the price of the underlying asset.

For long years, CFDs were not regulated, but in 2018, the Financial Markets Act brought rules into effect. While online brokers that provide CFDs have until June 2019 to submit their ODP licensing applications, some have contended that they are not required to do so.

On a variety of 55 currencies, precious metals, commodities, equities indexes, and individual stocks, Veracity, according to its website, provides leverage of up to 1:500.

Nirvesh Financial Services and Veracity Markets have been directed by the FSCA to:

Until the conclusion of an FSCA inquiry, cease functioning as an OTC derivatives provider, including advertising or representing themselves as such;

Stop starting any new OTC business right now;

immediately close off any open OTC derivative trading positions; and

Upon request, pay clients within seven business days.

The public should always confirm that a company or person is registered with the FSCA to offer financial advising & intermediary services, as well as the type of advise for which the business is registered. There are situations where someone is authorized to offer fundamental advising services, according to a statement from the FSCA.

According to Veracity's website, it “uses regulated liquidity providers for clearing of its customer trades” and is a “execution-only trading middleman.”

According to Brandon Topham, the divisional head of enforcement for the FSCA, Veracity is helping with the inquiry, which includes examining the company's viability.

We examined Veracity's solvency condition and were confident that they are able to honor their present customer positions. Additionally, Veracity's cooperation with the inquiry should be highlighted, adds Topham.

We haven't taken a more serious step, like asking the courts for an injunction, due to these and other considerations.

Getting an ODP license and upholding its strict risk and compliance requirements might cost millions of rands.

Even though there are several non-bank ODP licence holders as QuickTrade, IG Markets South Africa, and Khwezi Trade, banks possess the majority of the ODP licences issued by the FSCA.

Topham emphasized that it was crucial to verify whether a supplier has an ODP license before engaging in any online trade.