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JSE in hedge fund trading first

10 May 2011

In a move designed to bring much-needed transparency to the unregulated hedge fund industry, the Johannesburg Stock Exchange (JSE) has acquired Momentum's Managed Account Platform (MAP) after receiving approval for the transaction from the Competition Commission.

This risk management tool, which offers hedge fund investors greater protection by segregating investors' assets from the hedge fund manager, was developed to monitor hedge funds' trading activity, thereby ensuring that they remain within agreed investment mandates.

JSE Derivatives Trading head Allan Thomson said the acquisition makes the JSE the first exchange worldwide to endorse a managed account platform, in a move that will make hedge fund trading more transparent.

"We are delighted to have concluded this acquisition," Thomson said in a statement this week. "The JSE has been working with MAP for some time now.

"We believe that this deal will be beneficial for the markets, as it provides a safe platform for the hedge fund industry to grow."

Advancing supervision, credibility

Thomson said that hedge funds play and will continue to play an important role in South African financial markets. "MAP is a significant move forward towards giving investors greater confidence that hedge funds are operating within their mandates," he said.

The hedge fund industry in South Africa, like the rest of the world, is currently unregulated and has been fraught with reputational problems.

Thomson said he believed that while it may require a paradigm shift for the industry, a tool such as MAP managed by an entity such as the JSE – which is independent of any of the funds – would be welcomed by the industry.

"The JSE is confident that this venture will advance the supervision and credibility of the hedge fund industry and assist the already sound reputation of the South African financial markets," he said.

Introducing risk management framework

Rand Merchant Bank and Momentum developed MAP in 2007 as a way to create a more robust framework for institutional participation in the South African hedge fund industry.

"The market has been regarded as opaque, both locally and globally," said Momentum Alternative Investments head Braam Jordaan.

The gradual shift towards increased institutional investment into the hedge fund industry over the past few years resulted in the need for a broader application of the technology.

"This is an exciting development for the South African hedge fund industry. Momentum is proud to be associated with the development of this technology which has introduced a risk management framework more akin to that which institutional investors would find acceptable," Jordaan said.

SAinfo reporter