How ethical was Investec MD’s “clever trade”?

Bernard Kantor, MD of Investec, stands to make a tidy profit trading in derivatives based on his company’s share price, reports Media24. In the jargon of those clever people who have brough the world economy to a fall, Kantor “entered into a zero-cost collar on Investec’s share price”, purchasing a put option to sell 1 million shares at R40 and selling a call option to buy 2 million shares at R50. The revenue from the call option sale paid for the cost of the put option; hence the transaction had “zero cost” for Kantor. This transaction was made in November last year, when Investec was trading at R40.50. So if the share price fell below R40, Kantor would pocket one million times the difference; if it rose above R50, he would have the right to buy two million shares at R50 each and sell them, again pocketing the difference.

The shares have, in fact, fallen to about R30, so he stands to make R10 million if he exercises his put option.

Sounds very nice, until you consider that Kantor in effect made a bet that his company’s share price would fall. An MD who stakes his own money on a bet that his company’s share price is heading downstream – how ethical is that? You didn’t have to be a rocket scientist to guess that Inestec’s share price would fall – but as MD, Kantor would have had access to information other investors didn’t have. Did he give the same great advice to Investec’s clients: “Hey guys, here’s a sure bet – take a put on Investec at R40. Take it from me; they’re going to be down at R30 in three months’ time.” ? You bet he didn’t.

On the contrary, on November 13 group CEO Stephen Koseff was telling the market that Investec had turned a corner. “The banking climate is generally tough, but I think the eye of the storm has passed,” Koseff said during the company’s interim results presentation.

What was Kantor doing while his boss was giving investors that spin? Sitting behind him, twiddling his thumbs?


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