Supreme Court of Appeal finds lower court was wrong to liquidate broker JP Markets

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The Supreme Court of Appeal.
The Supreme Court of Appeal.
Ben Bezuidenhout, GroundUp, Wikimedia, file
  • SA's appellate court has overturned a ruling of the Johannesburg High Court placing online brokerage JP Markets into liquidation. 
  • The Financial Sector Conduct Authority had pushed the dealer to be liquidated for operating an unlicensed over-the-counter derivatives business.
  • But the SCA ruled that while JP Markets did not have a necessary license to offer OCT derivatives, it had applied for one.

SA's financial services regulator says it will "abide" by a unanimous judgment of the Supreme Court of Appeal (SCA) that overturned a lower court's ruling to place local currency-trading platform and brokerage JP Markets into liquidation. 

JP Markets, established in 2016 by Justin Paulsen, had R2.5 billion in its bank accounts frozen last year and was later placed into liquidation for operating an unlicensed over-the-counter (OCT) derivatives business. At its peak, it had over 300 000 clients. 

OCT derivatives are privately traded financial contracts that are generally held to be fairly high-risk. Special licenses are needed to issue them or create markets for them to be traded. 

On Wednesday, the appellate court ruled that the South Gauteng High Court in Johannesburg erred when it placed JP Markets into liquidation in early September 2020. 

Application was 'still pending' 

The SCA unanimously found that there was no evidence that JP Markets was a "systemic risk to its clients or to financial markets generally". While it did not have a licence to trade in OCT derivatives, it had applied for one. 

"At the time of the hearing of the appeal, that application was still pending before the authority," the court ruled. "The liquidation of JP Markets prior to the determination of its ODP licence application would not achieve the objects of the FMA [Financial Markets Act]."

Should an OCT trading licence be refused, the court said the FSCA would have "no difficulty" in obtaining an order prohibiting JP Markets from continuing to do business as a broker of OCT derivatives. 

"In the result, the winding-up of JP Markets was neither just nor equitable."

After the ruling was released, the FSCA said it would again look at JP Markets' licence application. 

"The authority … will now proceed with the processing of the application by JP Markets for an over-the-counter product provider licence, and the consideration of all outstanding enforcement actions," it said in a short note on Thursday. 

The regulator noted that the currency-trading platform would not be allowed to trade in CT derivatives until it had made a decision. 

Re-entering the market 

JP Markets CEO Justin Paulsen described the ruling as a "vindication".

"As the liquidation is set aside, JP Markets is currently consulting with its legal team as to the most prosperous way forward, in order to benefit all clients and stakeholders," he said. 

He added the group was looking forward to "re-entering the market as the leader it has always been".

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