Cablegate: Scandal at the Casablanca Stock Exchange


DE RUEHCL #0224/01 3311706
R 261706Z NOV 08




E.O. 12958: N/A

1. (SBU) Summary: The Morocco Council for the Code of Ethics
in Securities Markets, (CDVM) moved decisively the week of
17 November to address a simmering scandal at the Casablanca
Stock Exchange (CSE), recommending to the Minister of Finance
that the Exchange,s entire leadership be dismissed for its
"blatant failure to monitor the unlawful distribution of
insider information." The charges stem from the fact that
the Exchange,s new electronic trading system erroneously
made available to brokers confidential information on pending
trades. The CDVM report, however, exonerated the brokerages
that received the information, and also concluded that the
scandal played no role in the Exchange,s heavy financial
losses in mid-September. Two of the three executives singled
out by the Council did not wait for Finance Minister
Mezouar's decision, and have already resigned. Named to head
the exchange on an interim basis is respected veteran Jawad
Namri. End Summary.

The V-900 Affair

2. (SBU) At the center of the scandal is Bourse Maroc, a
Moroccan financial analysis firm that disseminates market
information to local and international brokerages and
financial services firms. As a result of an apparent
computer glitch on CSE,s V-900 electronic trading system,
the information it transmitted since March included
confidential details of pending trades. Clients who received
the Bourse Maroc data stream thus knew in advance who was
going to buy and sell stocks, in what quantities, and at what
price. According to CDVM, Bourse Maroc used this confidential
information to recruit hundreds of clients with promises of
substantial financial gains. Ironically, Bourse Maroc was
recently cited by a leading economic journal as an example of
how far the Moroccan financial market has come with respect
to its maturity.

4. (SBU) The President of CSE claims not to have been aware
of this supposed computer glitch, until informed by the
Professional Association of Brokerage Firms on 17 September.
The Exchange then attempted to quietly resolve the problem,
but information about it swiftly leaked throughout the
Casablanca and Rabat financial communities, prompting an
outcry that led to the CDVM investigation.

5. (SBU) In its report, the full text of which has not yet
been released to the public, CDVM cleared the brokerage
recipients of accusations that they used this data to
manipulate the Exchange, and also concluded that the data
flow was not at the root of the Exchange,s mid-September
financial losses. The Council judged, however, that stiff
sanctions against Exchange administrators were appropriate,
given their lack of oversight of the new trading system and
their attempt in late September to quietly clean it up. As a
result, it demanded the dismissal of the Exchange,s top
three executives: two did not wait on the Minister of
Finance,s disposition of the recommendation, but instead
resigned immediately. The fate of the Exchange's third
ranking official, Director General Hynd Bouhia, remains
uncertain. A well placed contact at the Exchange told us that
Bouhia, who is pregnant, had taken an early maternity leave
and is unlikley to return. (Note: Bouhia was recently named
the 29th most powerful woman in the world by Forbes Magazine.
End Note)

Hail to the CDVM

5. (SBU) Many in the financial community have welcomed CDVM's
actions as a "breath of fresh air". This is the first time
that CDVM has reacted quickly and authoritatively, a seasoned
foreign observer of the market noted. This view is not
unanimous, however. Some in the press have questioned
CDVM,s decision to clear the brokerages that received the
information, and pointed to a possible conflict of interest
between one of those companies, CFG Securities, and the CDVM

6. (SBU) Comment: This is likely only the first chapter of
the Casablanca Exchange Scandal, and further details will
undoubtedly emerge in coming weeks and months. For now, the
incident demonstrates the increasing aggressiveness of CDVM
in policing the Exchange, and implementing tough sanctions
against those it concludes have misused or neglected their
power. That the hitherto &toothless8 tiger has been able
to do this reflects the support Minister of Finance Mezouar
has extended to it. Whether the penalties were &too
harsh,8 as the President of the Moroccan Federation of
Business told the Consul General in a recent meeting, or too
limited, as some in the press have maintained, the CDVM is
making its presence felt. This will in the long run be
positive for the Exchange,s credibility, which has suffered
serious damage in this latest episode.

© Scoop Media

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