South African Financial Regulators Have a New Plan for the Foreign Exchange Market

The foreign exchange market is one of the biggest markets in the world. With up to $7 trillion daily turnover, the forex market has managed to become the most demanded industry globally. Millions of people invest, buy, and sell every day. While almost every country has very specific laws and regulations for the market, the activity has become mainstream in almost every single nation. The reason behind it is that people found some incredible opportunities in the market, which can provide not only with the dynamic flow but also can guarantee a decent income if traded correctly. 

The regulations of the foreign exchange market vary according to the countries. The regulations then create the overall atmosphere of the market and consequently determine the number of participants and active traders. The Financial regulators of each country make up the laws and create the regulations, according to which the markets work. 

South Africa caught a wave of changes 

It has become official that the South African financial regulators will soon set a dot, or a coma on the trading assets, which will be defined as domestic or foreign. Currently, all eyes are on the ETF strategist and the Financial Sector Conduct Authority, (FSCA). This act is especially on the stage since it has been official that the Treasury and the South African Reserve Bank are willing to ease the exchange control and introduce some new initiatives, which are aimed at making the foreign exchange market more viable. 

Some of the official statements have been made. The Treasury representative said that in the Medium-Term Budget Policy Statement, some of the restrictions will already be lifted. While there definitely are a lot of people and traders who are extremely happy about this fact, this has also been interesting news for the brokerage companies. The final world of financial authority is extremely vital for the continuation of successful trading and operating.

The statement which was published said that all the debt, derivatives, and exchange-traded instruments referencing foreign exchange assets, which are inward-listed, traded, and settled in rand on South African exchange will be classified as domestic. The classification of all inward-listed shares denominated in rand remains domestic. This means that the large list of South African brokers, will be able to offer the traders a quite big range of assets that can be traded in the foreign exchange market. This is something, which traders, as well as brokers, should be benefiting equally. 

The loss of the restrictions could be an indicator of the very first steps for the open and more liberated market. The market can benefit from the actions, but also something which locals will benefit more as well. The change clearly means that the locally listed forms holding offshore assets will have these assets defined as domestic holdings, as long as they trade the assets locally and of course in the local currency. So far it seems like the best solution to avoid scammers and constant offshore trading which is one of the most common ways of money drain from the country. 

This is not the only change the local authority is willing to introduce. It was said that the Sarb is making certain amendments in the Exchange Control Circular No 15/2020. The statement was clarified by the fact that all the remaining foreign classified debts and derivative instruments as well as exchange-traded funds referencing foreign assets, which are listed in South Africa exchange and traded in rand, will also be classified as a domestic, yet should be eligible to meet all of the required criteria for the reclassification procedure. 

The other side of the coin 

Yes, all of this might definitely sound very promising, but like everything else, we should not be only waiting for the best to happen. When introducing the above-mentioned statements, some companies and traders saw the open door, while others definitely not. One of those people who decided to have a glance on the second side of the coin, Nerina Visser, the ETF strategies, spoke out on the radio show. She also said that the restrictions are soon to disappear. She also said that despite the FSCA introducing some changes, the overall market was still facing some challenges with the old restrictions being effective. 

The main issue which should be noticed in her statement is that all of the changes will still be controlled by the FSCA and Treasury, this still means monopoly over decision making and the regulation of the domestic and foreign assets. She said that because of this fact, it is very unlikely that some drastic changes should be executed and there will be a 180-degree change in the situation. Moreover, the new regulations won’t affect those people who are willing to invest abroad, which is over 30% of the foreign assets managed by the market. 

One way or another, both authorities have earnest intentions, and it seems like those changes are part of the broader agenda and plan. This may also see the creation of non-rand-denominated listing instruments, collateral for derivative exposures, and possible mechanisms to enable financial services providers and asset managers to manage collective investment schemes of foreign assets from SA.