THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
JUDGMENT

Reportable
Case no: 460/2021

In the matter between:

JP MARKETS SA (PTY) LIMITED
APPELLANT

and

THE FINANCIAL SECTOR CONDUCT AUTHORITY
(FSCA)
RESPONDENT

Neutral citation: JP Markets v FSCA (Case no 460/2021) [2021] ZASCA 148
(20 October 2021)
Coram:
PETSE AP and VAN DER MERWE, MBATHA and HUGHES JJA and
MOLEFE AJA
Heard:
21 September 2021
Delivered: This judgment was handed down electronically by circulation to the parties’
legal representatives by email. It has been published on the Supreme Court
of Appeal website and released to SAFLII. The date and time for hand-
down is deemed to be 09h45 on 20 October 2021.
Summary: Financial markets – application for winding-up by Financial Sector Conduct
Authority under s 96 of Financial Markets Act 19 of 2012 (FMA) – not requirement that
preceding investigation had to be concluded – whether winding-up just and equitable –
requires consideration of whether objects of FMA would be achieved and of availability
of alternative remedies.

ORDER

On appeal from: Gauteng Division of the High Court, Johannesburg (Gilbert AJ, sitting
as court of first instance): judgment reported sub nom Financial Sector Conduct Authority
v JP Markets SA (Proprietary) Limited [2020] 4 All SA 457 (GJ)
1  The appeal is upheld with costs, including the costs of two counsel.
2  The order of the court a quo is set aside and replaced with the following:

‘The application is dismissed with costs, including the costs of two counsel.’

JUDGMENT

Van der Merwe JA (Petse AP and Mbatha and Hughes JJA and Molefe AJA
concurring)
[1] The respondent in this appeal, the Financial Sector Conduct Authority (the
Authority), is a juristic person established in terms of s 56(1) of the Financial Sector
Regulation Act 9 of 2017 (the FSRA). At the instance of the Authority, the Gauteng
Division of the High Court, Johannesburg (Gilbert AJ) ordered the final liquidation of the
appellant, JP Markets SA (Pty) Ltd (JP Markets). The appeal is with the leave of the
court a quo. The principal issues in the appeal are whether the Authority met the statutory
jurisdictional requirements for the exercise of the power to institute an application for
liquidation and, if so, whether it made out a proper case for the winding-up of JP Markets.

Background
[2] It is necessary to state at the outset what the matter is not about. The Financial
Advisory and Intermediary Services Act 37 of 2002 (the FAIS Act) regulates the
rendering of financial advisory and intermediary services to clients by financial services
providers (FSPs). It provides that no person may act (or offer to act) as an FSP without

a licence issued by the Authority under s 8 thereof. A Category 1 FSP licence authorises
an FSP to provide advisory and intermediary services in respect of derivative
instruments, as well as deposits as defined in the Banks Act 94 of 1990. In general terms
a derivative instrument is a financial product that has a value based on the value of
another product, such as indices, currencies or commodities. The Authority issued a
Category 1 FSP licence to JP Markets. The evidence did not, however, provide any
indication that JP Markets conducted business as an FSP by rendering financial advisory
and intermediary services.

[3] Rather, the matter concerns transacting in over-the-counter (OTC) derivatives.
In terms of the Financial Markets Act 19 of 2012 (the FMA), the Minister of Finance made
the Financial Markets Act Regulations (the regulations).1 The regulations define an OTC
derivative as ‘an unlisted derivative instrument that is executed, whether confirmed or
not confirmed’,2 but excluding foreign exchange spot contracts and physically-settled
commodity derivatives. OTC derivatives are unlisted because they are not kept by an
exchange in terms of s 11 of the FMA. They are high-risk financial products in respect
of which only skilled traders could hope to profit over time.

[4] In terms of the regulations an OTC derivative provider (ODP) means ‘a person
who as a regular feature of its business and transacting as principal: (a) originates,
issues or sells OTC derivatives; or (b) makes a market in OTC derivatives’.3 An ODP is
colloquially referred to as a broker and its clients are referred to as traders. In terms of
reg 2, a person may not act, advertise or hold itself out as an ODP unless authorised by
the Authority in terms of s 6(8) of the FMA. For convenience, I refer to this as an ODP
licence.

[5] In offering OTC derivative instruments to clients an ODP generally quotes an
‘ask’ price, at which the instrument may be bought, and a ‘bid’ price, at which it may be
sold. Accordingly, a client may buy the instrument at the ask price and sell it at the bid

1 ‘Financial Markets Act Regulations, GN R98, GG 41433, 9 February 2018.’
2 Financial Markets Act Regulations, s 1.
3 Ibid.

price. The difference between the two prices is known as the ‘spread’. The effect of such
a contract between the ODP and the client is that should the underlying asset price or
index increase, the client will make a profit and the ODP will make a corresponding loss,
and vice versa.

[6] JP Markets stated that it had approximately 300 000 client accounts, of which
approximately 20 000 would be active on any given day. These numbers apparently
include so-called A-Book and B-Book clients. The A-Book clients trade directly with an
entity referred to as a liquidity provider. The B-Book clients trade directly with JP Markets.
It did not say that it had any other type of client, nor what the percentage of its B-Book
clients were. It is safe to say, however, that they constituted the bulk of its clients.
This judgment deals with the business of JP Markets that consisted of transactions
between it and its B-Book clients. The evidence revealed how this business was
operated. Much of the following exposition was derived directly from the evidence of
Mr Justin Paulsen, the sole shareholder and directing mind of JP Markets.

[7] It is the licensee in respect of computer software that constitutes a trading
platform. The trading platform is ‘populated’ by pricing data. JP Markets purchases the
pricing data from a liquidity provider. The trading platform is not a market in the ordinary
meaning thereof. JP Markets utilises it to offer contracts-for-difference (CFDs) to clients.
CFDs are a popular form of OTC derivatives. They are instruments that enable clients
to speculate on the increase or decrease of indices or in the prices of, inter alia,
currencies and commodities. A CFD mirrors the movements of the index or in the price
of the underlying assets and profits are gained or losses suffered relative to the position
that the client has taken. The effect of the contract between JP Markets and the client in
respect of a CFD is that, depending on the relevant increase or decrease, the one profits
and the other suffers a corresponding loss and vice versa.

[8] JP Markets is not able to change the pricing data on the trading platform. It can
and does, however, alter the spreads offered to particular clients or groups of clients.
The spreads are offered on the platform and the clients are free to accept them or to
shop around for better trades. The adjustment of spreads particularly takes place in

respect of what is referred to in the industry as ‘toxic’ clients. These are clients suspected
of engaging in questionable trading practices. This is often indicated by high-volume
and/or high-value trades that pose a particular risk of loss to JP Markets.

[9] Although there may previously have been some uncertainty in this regard, the
evidence established with clarity that the business of JP Markets fell squarely within the
definition of an ODP. As a regular feature of its business it at the very least issued and/or
sold OTC derivatives whilst acting as a principal. It follows that JP Markets required an
ODP licence to lawfully continue with its business. It submitted a formal application for
an ODP licence to the Authority on 21 August 2020. That was after the application for its
liquidation had been launched on an urgent basis on 7 July 2020. However, this must be
seen in the following context.

[10] The regulations introduced the requirement of an ODP licence during February
2018. The Authority nevertheless granted a period of grace for the submission of ODP
licence applications until 14 June 2019. During July 2019, the internal compliance officer
of JP Markets consulted with the Authority regarding the purport of the regulations.
The Authority indicated that the application process was still in its infancy. In the result,
the compliance officer advised JP Markets that she was awaiting clarity from the
Authority regarding several elements of the regulatory licencing process.

[11] On 14 October 2019, representatives of the Authority interviewed Mr Paulsen.
During the interview he made it clear that JP Markets was the party (‘counter party’) that
contracted with the clients in respect of CFDs. After the interview one of the interviewers
enquired from Mr Paulsen whether JP Markets would be applying for an ODP licence.
He responded that JP Markets was seeking advice in this regard. The internal
compliance officer contacted the Authority on the same day. It responded the following
day, 15 October 2019, and stated that the regulations, the Authority’s Conduct Standard
1 of 2018 (criteria for authorisation of OTC derivative providers) and other documentation
on its website should guide JP Markets in respect of the licencing process. In an
interview with a manager of the South African Reserve Bank during November 2019,

Mr Paulsen also admitted that JP Markets was the other party to the transactions with
its clients.

[12] In the meantime, however, the internal and external compliance officers of JP
Markets were researching whether JP Markets in fact required an ODP licence.
On 10 December 2019, the Authority issued a notice to JP Markets in terms of s 136 of
the FSRA. The notice required it to furnish the Authority with a variety of particulars
relating to, inter alia, its business, trading platform and financial products. The notice
stated that it was understood that JP Markets was the counter party in respect of or the
issuer of CFDs, and required it to state whether it had applied for an ODP licence and,
if not, the reasons for not having done so. JP Markets provided a comprehensive
response to the Authority on 6 January 2020. It reiterated that it was the counter party
to CFD transactions, but put forward an argument that its business nevertheless did not
fall within the definition of an ODP. The argument was, inter alia, based on the fact that
the pricing on its trading platform emanated from the liquidity provider. JP Markets stated
that it would appreciate the guidance of the Authority on the points that the former had
raised. The Authority did not respond thereto.

[13] On 20 January 2020, however, JP Markets’ external compliance officer advised
it that the Authority had indicated that it had to ‘register as an ODP’. On 30 January 2020,
Mr Paulsen instructed staff members of JP Markets to commence the process of
preparing its ODP licence application. During February 2020, the internal compliance
officer raised various difficulties in this regard with the Authority. In response, the
Authority offered to assist JP Markets with the application process.

[14] JP Markets thus commenced the process of preparing its ODP licence
application. It was advised by the Authority, however, that it had to pay the licencing fee
prior to the submission of the application. After several written enquiries in this regard
on behalf of JP Markets, the Authority, on 18 June 2020, provided it with an invoice in
respect of the licencing fee in the amount of R50 000. JP Markets paid the fee
immediately.

[15] The following day, 19 June 2020, the Authority provisionally suspended JP
Markets’ FSP licence until 30 September 2020. The notification that conveyed this
decision set out the reasons therefor. For present purposes it suffices to say that, in the
main, they were related to OTC derivative transactions. In terms of the notice JP Markets
was prohibited from conducting new business as envisaged in the FAIS Act. During a
teleconference on 23 June 2020, Mr Paulsen informed the Authority that it would comply
with the terms of the notice of provisional suspension. However, it enquired whether ‘new
business’ included existing clients with open positions, who could be severely prejudiced
if they were not allowed to make deposits in respect of those positions. There was an
understanding that this matter would be given further attention.

[16] On 24 June 2020, JP Markets responded to the notice of provisional suspension
in writing and on 25 June 2020 the Authority’s investigators conducted a further interview
with Mr Paulsen, which could not be finalised. Neither in this response nor in the
interview did JP Markets deny that it was a party to CFD transactions with its clients, but
argued that it was not the originator of the instruments. At this interview the Authority
also clarified (and JP Markets accepted) that it could do no new business in respect of
new or existing clients. As I have said, the Authority launched the liquidation application
on 7 July 2020 and JP Markets submitted its ODP licence application on 20 August 2020.
In the result, JP Markets’ ODP licence application was pending on the date of the hearing
of the winding-up application in the court a quo.

[17] For its legal standing to launch the liquidation application, the Authority relied
upon the provisions of both s 38B of the FAIS Act and s 96 of the FMA. Its founding
affidavit proceeded to relate that the Authority had received more than a hundred
complaints from clients of JP Markets. The complaints had two main themes. The first
was that JP Markets had failed to make payments that were due to its clients.
The second was that due to interrupted access to its online trading platform, its clients
had been unable to close their positions, with resultant losses.

[18] The Authority instructed investigators to conduct an investigation into the
complaints. The Authority said that the investigation was ongoing but reached a stage

where the information that had been gathered ‘informed’ the winding-up application. The
founding affidavit demonstrated that JP Markets operated as an ODP without a licence.
The Authority also alleged that there was a conflict between the interests of JP Markets
and those of its clients. These matters, as well as the treatment of ‘toxic’ clients by
JP Markets, formed the mainstay of the application.

[19] The court a quo held that the Authority’s application was empowered by both
s 38B of the FAIS Act and s 96 of the FMA. It had regard to the alleged grounds for the
liquidation of JP Markets. The heart of its reasoning appeared from the following:
‘148. It is the failure of the respondent to have timeously applied for an ODP licence when it was
conducting the business of an OTC derivative provider and its persistence in conducting that
business without applying for a licence when it was required to do so, coupled with its obfuscation
in its dealings with the applicant as the relevant financial sector regulator, that most strongly
militates in favour of the granting of a liquidation order, whether in terms of section 96 of the FMA
or section 38B of FAIS.
149. The other grounds for winding-up therefore need not be considered in any detail save to
state that such grounds demonstrate the necessity for the respondent to have been licenced as
an ODP.’
The court accordingly concluded that it was just and equitable to order the winding-up of
JP Markets.

Authority’s power to apply for winding-up
[20] Section 1A of the FAIS Act deals with the relationship between it and the FSRA.
It provides that certain references in the FAIS Act should be read as references to
provisions of the FSRA. Read with s 1A and insofar as it is relevant to this case, s 38B(1)
provides as follows. If, after a supervisory on-site inspection or an investigation in terms
of the FSRA, the Authority considers that the interests of the clients of an FSP or of
members of the public so require, it may apply to the court for the liquidation of that FSP,

whether or not it is solvent, in accordance with the Companies Act 71 of 2008 (the
Companies Act).4

[21] I very much doubt whether s 38B(1) could find application in this case. As I have
demonstrated, the winding-up application was not about the conduct of JP Markets as
an FSP or about the protection of the interests of clients or the public in respect of
financial advisory or intermediary services. There is much to be said for the view that the
section envisages the winding-up of an FSP qua FSP. In addition, the phrase ‘in
accordance with the Companies Act’ appears problematic. Section 81 of the Companies
Act enumerates the classes of persons that may apply for the winding-up of a solvent
company. They do not include the Authority. Thus, it may be argued that the Authority
could only apply for the winding-up ‘in accordance with the Companies Act’ under
s 157(1)(d), that is, when acting in the public interest, with leave of the court. However,
in the light of the conclusion that I have reached, it is not necessary to determine these
matters.

[22] It is necessary to reproduce s 96 of the FMA in full:
‘Powers of Authority after supervisory on-site inspection or investigation
After a supervisory on-site inspection or an investigation has been conducted, the Authority may,
in order to achieve the objects of this Act referred to in section 2-
(a)     if the respondent is a company-
(i)    apply to the court under section 81 of the Companies Act for the winding-up of the
respondent as if the Authority were a creditor of the respondent;
(ii)   apply to the court under section 131 of the Companies Act to begin business rescue
proceedings in respect of the respondent as if the Authority were a creditor of the
respondent;

4 Section 38B(2) provides: ‘In deciding an application contemplated in subsection (1), the court—
(a) may take into account whether sequestration or liquidation of the financial services provider concerned
is reasonably necessary—
(i) in order to protect the interests of the clients of the provider; and
(ii) for the integrity and stability of the financial sector;
(b) may make an order concerning the manner in which claims may be proved by clients of the financial
services provider concerned; and
(c) shall appoint as trustee or liquidator a person nominated by the registrar.’

(b)     subject to section 5 of the Financial Institutions (Protection of Funds) Act, apply to the court
for the appointment of a curator for the business of the respondent;
(c)     direct the respondent to take any steps, or to refrain from performing or continuing to
perform any act, in order to terminate or remedy any irregularity or state of affairs disclosed by
the supervisory on-site inspection or investigation;
(d)     direct the respondent to prohibit or restrict specified activities, performed in terms of this
Act, of a director, managing executive, officer or employee of the respondent, if the Authority
believes that the director, managing executive, officer or employee is not fit and proper to perform
such activities; or
(e)     hand the matter over to the National Director of Public Prosecutions, provided that the
contravention or failure constitutes an offence in terms of this Act.’

[23] Section 2 of the FMA sets out its objects, in these terms:
‘Objects of Act
This Act aims to-
(a)
ensure that the South African financial markets are fair, efficient and transparent;
(b)     increase confidence in the South African financial markets by-
(i)  requiring that securities services be provided in a fair, efficient and transparent
manner; and
(ii) contributing to the maintenance of a stable financial market environment;
(c)
promote the protection of regulated persons, clients and investors;
(d)
reduce systemic risk; and
(e)
promote the international and domestic competitiveness of the South African financial
markets and of securities services in the Republic.’

[24] There was no suggestion that a supervisory on-site inspection had taken place.
Thus, the question was whether the jurisdictional requirement that ‘an investigation has
been conducted’ had been met. With reference to the evidence that the investigation
was ongoing, JP Markets argued that this phrase must be interpreted to mean ‘after . . .
an investigation has been concluded’.

[25] This contention faces difficulty at every level of interpretation. First, the text
simply does not say that an investigation must have been concluded. It does not

introduce any element of finality. It says that an investigation must have been conducted.
An ongoing investigation has been conducted even though it may still be continuing.

[26] Secondly, the context points to the same conclusion. It is clear that the remedies
in subsections (a) to (e) of s 96 may be invoked after a single supervisory on-site
inspection. The section does not require the inspection to have had a formal or final
result. This provides a strong indication that a formal or final result in respect of an
investigation is similarly not a requirement.

[27] In the third place, the interpretation for which JP Markets contended is
unbusinesslike. It leads to an insensible result. It makes little or no sense to require that
an investigation be concluded before the taking of any steps in terms of subsecs (a) to
(e) would be permissible, even though an ongoing investigation revealed evidence that
would justify or require such action.

[28] With reference to s 91 of the FSRA, JP Markets argued that a contrary
interpretation would deprive it of the right to have a decision taken under s 96 reviewed
and set aside under the provisions of the Promotion of Administrative Justice Act 3 of
2000 (PAJA). It pointed out that PAJA does not apply to incomplete investigative action.
Read with the definitions in s 1 of the FSRA, s 91 provides that PAJA applies to any
administrative action (within the meaning of PAJA) taken by, inter alia, the Authority in
terms of the FMA.

[29] The short answer to this submission is that a decision to apply to a court under
subsec (a) or (b) is not administrative action under PAJA. It could not by itself affect the
rights of any person nor have a direct, external legal effect. The same applies to
proceeding under subsec (e). This must be distinguished from a direction under
subsec (c) or (d), which could well be subject to review under PAJA. It follows that the
court a quo correctly held that the Authority was authorised by s 96 of the FMA to apply
for the liquidation of JP Markets.

Just and equitable ground for winding-up
[30] It will be recalled that in terms of subsec (a)(i) of s 96, the Authority may, in order
to achieve the objects of the FMA, apply for the winding-up of a respondent under s 81
of the Companies Act, as if it were a creditor of the respondent. In the circumstances of
this case s 81(1)(c)(ii) of the Companies Act5 was applicable. Thus, the Authority had to
show that it was just and equitable for JP Markets to be wound up.

[31] Although our courts have repeatedly stressed that this does not constitute a
complete or closed list, they have over the years developed five broad categories of
cases that could constitute a ‘just and equitable’ ground. These are: (a) disappearance
of the company’s substratum; (b) illegality of the objects of the company and fraud in
connection therewith; (c) a deadlock in the management of the company’s affairs which
can only be resolved by winding it up; (d) grounds analogous to those for the dissolution
of partnerships; and (e) oppression. These categories remain applicable under the
Companies Act and may, of course, be extended.6

[32] Most of these categories apply to cases where the applicant is a shareholder of
the company and none of them apply to JP Markets. Importantly, a winding-up under
s 96 must be aimed at achieving the objects of the FMA. The determination of whether
it would be just and equitable to order a winding-up under s 96, is therefore inextricably
linked to the achievement of the objects of the FMA. As the manifest purpose of the FMA

5 Section 81(1) provides that:
‘A court may order a solvent company to be wound up if—
(a) . . .
(b) . . .
(c) one or more of the company’s creditors have applied to the court for an order to wind up the company
on the grounds that—
(i)  . . .
(ii) it is otherwise just and equitable for the company to be wound up.’
6 See Rand Air (Pty) Ltd v Ray Bester Investments (Pty) Ltd 1985 (2) SA 345 (W); Cuninghame and
Another v First Ready Development 249 (Association incorporated under s 21) [2010] 1 All SA 473; 2010
(5) SA 325 (SCA) para 6; Thunder Cats Investments 92 (Pty) Ltd and Another v Nkonjane Economic
Prospecting & Investment (Pty) Ltd and Others [2013] ZASCA 164; [2014] 1 All SA 474; 2014 (5) SA 1
(SCA) paras 15 and 16.

is to serve public interest, the dictum of this Court in Redhisa7 para 1168 is relevant to
s 96. Consequently, a consideration of alternative remedies must also take a central
place in the enquiry.

[33] The starting point must be that JP Markets is a solvent company and a
substantial concern. It employs 70 permanent employees at a monthly cost of more than
R1 million. It paid in excess of R1 billion to thousands of clients during the period of three
months preceding the liquidation application. It was not disputed that its own cash equity
amounted to approximately R220 million.

[34] The Authority declined to make the complaints levelled against it available to JP
Markets. JP Markets nevertheless pointed out that around 100 dissatisfied clients did
not represent a large percentage of its approximately 300 000 clients. It said that it did
its utmost to retain clients in a very competitive environment. It would be
counterproductive to arbitrarily deny withdrawal requests or to cause unnecessary
delays, and that it did not do so. It explained that in limited cases, where prohibited
trading had been identified (and after the trader was afforded an opportunity to make
representations), profits were withheld, but the client’s deposit was refunded.

[35] It further explained that because trading takes place on an automated trading
platform, interruptions in access thereto would be detrimental to its business. It therefore
employed all precautions at its disposal to prevent such interruptions or system failures.
The instances of interruption of access to the trading platform that occurred had been
caused by circumstances beyond its control.

[36] One such event, for example, was a ‘global market halt’ on 16 March 2020.
It was caused by the COVID-19 pandemic and affected many brokers around the world.

7 Recycling and Economic Development Initiative of South Africa NPC v Minister of Environmental Affairs
[2019] ZASCA 1; [2019] 2 All SA 1; 2019 (3) SA 251 (SCA) (Redhisa).
8 Paragraph 116 states: ‘There is one more reason why it was not just and equitable to wind up the
appellants: the court had to be satisfied that the Minister had no alternative means to address complaints
before resorting to the drastic expedient of winding up the appellants. The court a quo did not address this
requirement. It is discussed further in the following section.’

As a result, the pricing of instruments on JP Markets’ trading platform were either absent
or incorrect. In affected clients were restored to the positions in which they had been
before the market halt. Whilst clients who had lost money were refunded, the profits of
others were reversed, which understandably might have caused dissatisfaction and
complaints. It is clear from the aforegoing that it could not be determined on the papers
whether any of the complaints were valid.

[37] There was no evidence that the clients of JP Markets had been unaware that
they transacted with JP Markets itself. It follows that it could not be said that there was
any conflict of interest as alleged. And because traders were free to accept or decline
the spreads offered to them, it was not objectionable to quote differentiated spreads to
clients that had been regarded as ‘toxic’. I have set out the interactions between
JP Markets and the Authority in some detail to show that, contrary to what the court a
quo found, JP Markets had not been guilty of obfuscation.

[38] The evidence therefore did not establish that the business of JP Markets
constituted a systemic risk to its clients or to financial markets generally. It follows that
the only remaining relevant factor was that JP Markets had been doing business as an
ODP without a licence. In this regard it was in the first place not irrelevant that it was not
the only one to do so.

[39] Following the service of the liquidation application, JP Markets caused a letter to
be sent to the Authority, seeking copies of the ODP licences of all other OTC derivative
brokers. The letter contained a list of eight OTC derivative providers who were known to
operate on the same business model as JP Markets. The Authority’s response recorded
that only one of these entities had submitted an application for an ODP licence. Notably,
the Authority had not taken steps against any of these brokers.

[40] In the circumstances the decisive consideration was that JP Markets had applied
for an ODP licence. At the time of the hearing of the appeal that application was still
pending before the Authority. The liquidation of JP Markets prior to the determination of
its ODP licence application would not achieve the objects of the FMA. I believe that the

court a quo had this in mind when it said the following in respect of granting leave to
appeal:
‘What has swayed me to find that there is some other compelling reason why the appeal should
be heard is that my judgment does operate in a regulatory environment and more particularly
the regulation of the unlicensed conducting of the business of an OTC derivative provider, and
how that is advanced by granting a winding-up order.’
And should an ODP licence ultimately be refused, the Authority would have no difficulty
to obtain an order prohibiting JP Markets from continuing to do business as an ODP.
In the result, the winding-up of JP Markets was neither just nor equitable.

[41] For these reasons I conclude that the court a quo erred in finding that it was just
and equitable to liquidate JP Markets and that the appeal must succeed. Although
JP Markets employed four counsel, it rightly asked to be awarded the costs of only two
counsel.

[42] The following order is issued:
1  The appeal is upheld with costs, including the costs of two counsel.
2  The order of the court a quo is set aside and replaced with the following:

‘The application is dismissed with costs, including the costs of two counsel.’

_______________________
C H G VAN DER MERWE
JUDGE OF APPEAL

Appearances

For appellant:

J Muller SC (with him A Katz SC, P Long and
K Perumalsamy)
Instructed by:

Hanekom Attorneys, Cape Town

Webbers Attorneys, Bloemfontein

For respondent:

E Theron SC (with him L Mbatha)
Instructed by:

Mamatela Attorneys, Johannesburg

Lovius Block Attorneys, Bloemfontein

THE SUPREME COURT OF APPEAL OF SOUTH AFRICA
MEDIA SUMMARY OF JUDGMENT DELIVERED IN THE SUPREME COURT OF
APPEAL
From:
The Registrar, Supreme Court of Appeal
Date:
20 October 2021
Status:
Immediate
The following summary is for the benefit of the media in the reporting of this
case and does not form part of the judgments of the Supreme Court of Appeal
JP Markets v FSCA (460/2021) [2021] ZASCA 148 (20 October 2021)
The Supreme Court of Appeal (SCA) today upheld an appeal brought by JP Markets
SA (Pty) Ltd (JP Markets) against the decision of the Gauteng Division of the High
Court, Johannesburg (the high court). The appeal was upheld with costs, including the
costs of two counsel. The decision of the high court was thereby set aside.

The respondent in the appeal was the Financial Sector Conduct Authority (the
Authority), a juristic person established in terms of s 56(1) of the Financial Sector
Regulation Act 9 of 2017 (the FSRA). At the instance of the Authority, the high court
ordered the final liquidation of the appellant, JP Markets.

The principal issues in the appeal were whether the Authority met the statutory
jurisdictional requirements for the exercise of the power to institute an application for
liquidation and, if so, whether it made a proper case for the winding-up of JP Markets.

For the power to launch the liquidation application, the Authority relied upon the
provisions of both s 38B of the Financial Advisory and Intermediary Services Act 37 of
2002 (the FAIS Act) and s 96 of the Financial Markets Act 19 of 2012 (the FMA). The
Authority alleged that it had received more than a hundred complaints from clients of
JP Markets. The complaints had two main themes. The first was that JP Markets had
failed to make payments that were due to clients. The second was that due to
interrupted access to its online trading platform, clients had been unable to close their
positions, with resultant losses. The Authority instructed investigators to conduct an
investigation into the complaints. The Authority said that the investigation was ongoing
but reached a stage where the information that had been gathered ‘informed’ the
winding-up application. The Authority also alleged that there was a conflict between
the interests of JP Markets and those of its clients. Further, that JP Markets operated
as an over-the-counter (OTC) derivative provider (ODP) without a licence. These
matters, as well as the treatment of ‘toxic’ clients by JP Markets, formed the mainstay
of the application.

The SCA found that the evidence established with clarity that the business of JP
Markets fell squarely within the definition of an ODP. It followed that JP Markets
required an ODP licence to lawfully continue with its business. It had submitted a
formal application for an ODP licence to the Authority on 21 August 2020. That was
after the application for its liquidation had been launched on an urgent basis on 7 July
2020. In the result, JP Markets’ ODP licence application was pending on the date of
the hearing of the winding-up application in the high court.

The SCA held that s 38B(1) of the FAIS Act could not find application in this case. This
was because the winding-up application was not about the conduct of JP Markets as
a financial services provider (FSP) or about the protection of the interests of clients or
the public in respect of financial advisory or intermediary services.

The SCA held further that the high court had correctly held that the Authority was
authorised by s 96 of the FMA to apply for the liquidation of JP Markets. This was
because the jurisdictional requirement that ‘an investigation has been conducted’ had
been met. Further, the SCA found that the Authority had to show that it was just and
equitable for JP Markets to be wound up. The determination of whether it would be
just and equitable to order a winding-up under s 96 was inextricably linked to the
achievement of the objects of the FMA. A consideration of alternative remedies must
also take a central place in the enquiry.

In this regard, the SCA found that it could not be determined on the papers whether
any of the complaints were valid. In addition, there was no evidence that the clients of
JP Markets had been unaware that they transacted with it. It followed that it could not
be said that there was any conflict of interest as alleged. And because traders were
free to accept the spreads offered to them or not, it was not objectionable to quote
differentiated spreads to clients that had been regarded as ‘toxic’. Moreover, the SCA
set out the interactions between JP Markets and the Authority in some detail to show
that it was not guilty of obfuscation. The evidence therefore did not establish that the
business of JP Markets constituted a systemic risk to its clients or to financial markets
generally. It followed that the only remaining relevant factor was that JP Markets had
been doing business as an ODP without a licence. In this regard, the SCA found that
it was in the first place not irrelevant that it was not the only one to do so. Notably
though, the Authority had not taken steps against OTC derivative brokers who were
known to operate on the same business model as JP Markets. Finally, the liquidation
of JP Markets prior to the determination of its ODP licence application would not
achieve the objects of the FMA. And should an ODP licence ultimately be refused, the
Authority would have no difficulty to obtain an order prohibiting JP Markets from
continuing to do business as an ODP. In the result, the SCA held that the winding-up
of JP Markets was neither just nor equitable.
~~~~ends~~~~