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FSR - FirstRand - Financial Services Board ("FSB") Report On Dealstream Securities (Pty) Ltd FirstRand Limited (Incorporated in the Republic of South Africa) (Registration number: 1966/010753/06) ISIN: ZAE000066304 Share Code (JSE): FSR Share Code (NSX): FST FINANCIAL SERVICES BOARD ("FSB") REPORT ON DEALSTREAM SECURITIES (PTY) LTD Dealstream Securities (Pty) Ltd ("Dealstream") was a non-clearing member of the JSE and an authorised user as defined in section 1 of the Securities Services Act. A non-clearing member trading SAFEX instruments has to place margin at the JSE through a clearing member. RMB acted as the clearing member for Dealstream in respect of its JSE Single Stock Futures dealings. It did not know and did not have a relationship of any nature with Dealstream`s clients. RMB`s only dealings with Dealstream was as clearer of Dealstreams futures contracts. RMB placed Dealstream in default on 22 September 2008 because Dealstream was unable to meet its margin obligations which RMB as its clearing member had an obligation to guarantee. The FSB have issued an inspection report on Dealstream. This investigation was conducted by the FSB at the request of the Registrar of Securities Services and Financial Services Providers and the report formed part of the documents presented in a hearing in the Pretoria High Court on Tuesday 7th October 2008 for the appointment of a curator for Dealstream. As a claimant against Dealstream, RMB fully supports the FSB`s investigation of Dealstream and has, to date, provided the FSB with details of transactions between itself and Dealstream but has not yet had the opportunity to engage with the FSB over its findings. Should the FSB choose to conduct any further investigation, RMB will cooperate fully. The FSB report indicated that Dealstream started failing to meet its margin calls from the 2nd September 2008 and that RMB had allowed the situation to continue despite Dealstream not being able to meet its obligations. In terms of our normal credit procedure, it is not common to immediately place a customer in default following a breach. The common practice for a clearing member is to first try to understand the cause of the breach and establish with the customer what can be done to remedy such a breach which may often be as innocent as an administrative error. Under such circumstances, the clearing member would provide the margin to the JSE on behalf of the non clearing member. This effective provision of credit is secured by the non clearing member`s initial margin placed with the JSE in terms of JSE regulations and which is intended to cover normal market movements. In general, a customer is only placed in default as a last resort. During the period of 2nd September to 22nd September, meetings were held with Dealstreams management to discuss payment of their margin obligations. Some additional margin was placed with RMB. Furthermore, the required level of variation margin decreased and increased with market movements and position close-outs and at a time in this period Dealstream was up to date with its margins. When it finally became clear that Dealstream could not continue to meet its commitments and that the market prices had moved dramatically to effectively eliminate the security provided by the initial margin, RMB took the decision on 22nd September 2008 to place Dealstream in default in terms of its future clearing agreement and JSE rules governing the default of a member. The report also indicated that RMB had, as a result of Dealstream`s default, incurred losses of R401.7 million which is not correct. The financial consequences for RMB of Dealstream`s default are as follows: - RMB`s gross claim against Dealstream was R401.7 million upon assuming Dealstream`s positions after default - Dealstream had an initial margin with the JSE of R187.2 million which, when offset against the gross claim, resulted in RMB having a net claim against Dealstream to the value of R214.4 million, the recoverability of which will only be determined once the financial position of Dealstream has been established. - In accordance with its future clearing agreement and in conjunction with the JSE, RMB took over the futures positions of Dealstream. These positions amounted to an equivalent physical value of R1.14 billion. - RMB has subsequently sold the portfolio down to R742 million and did not occur any losses in the sell down. - Included in the remaining portfolio are significant holdings in Vox Telecom Ltd (VOX) and Simmer and Jack Mines Ltd (SIM). These investments will be managed by RMB as strategic holdings with a longer term investment horizon in order to fully realise fundamental value. Sandton 9 October 2008 Sponsor RAND MERCHANT BANK (A division of FirstRand Bank Limited) Date: 09/10/2008 07:30:02 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.
