The Johannesburg Stock Exchange (JSE) is by far the largest in Africa.
During 1997 and 1998, there was a rash of new listings. 101 firms went public in 1998, nearly double the previous year’s 53. However, although there was much activity, it did not equal that of 1987, when 211 new companies were listed.
Of the companies quoted on the JSE, over 150 have dual listings on foreign bourses. In 1995, the foreign trade in these shares amounted to 142% of JSE trade in the same shares. Since deregulation, the JSE has regained ‘market share’. In 1996, foreign bourses accounted for just 82% of the trade in shares with dual listings, reducing further to about 70% in mid 1997.
One of the problems which has historically beset the JSE is insider trading ( usually defined as profiting from the use of price sensitive information that has not been disclosed to the rest of the market.) No one has ever been successfully prosecuted for insider trading in South Africa and it is generally believed that to date the legislation has been inadequate and that such laws as have existed have been lax and/or unenforceable. New legislation, based on recommendations in 1997 by Mervyn King (a lawyer appointed by the government to examine the issue), came into effect in Q1 1999. This is expected to bring South Africa into line with international standards, although scepticism has been expressed regarding its likely effectiveness. The new legislation also transfers jurisidiction for the investigation of insider trading from the Securities Regulation Panel to the Financial Services Board.
The Changing Face of the JSE
The JSE is in the middle of a transformation process which will completely change the system under which it has operated for years.
The first major change occurred in early November 1995, when the Stock Exchanges Control Act came into effect. The main changes which have taken place are:
- stockbroking membership of the JSE is now open to outsiders and corporate entities (previously it was limited to individuals who were South African citizens); brokerage has become fully negotiable; and brokers are able to act as principals in their own right, buying and selling stock for their own account (previously they could only act as agents, buying and selling on behalf of their clients
- new capital adequacy requirements, which have major financial implications for broking firms. These are based on European Union requirements and involve the separation of clients’ funds from those of brokers.
- the open outcry market has now disappeared, as the trading system has become an automated, screen-based, computer driven trading system (the Johannesburg equities trading (JET) screen based system)
- opening the JSE to corporate membership resulted in a stampede by foreign banks in search of local stock broking firms. Most of the large broking firms have been bought by foreign banks, many of which have used this as a platform for other financial services, such as corporate and government advisory work.
- a real-time Stock Exchange News Service (Sens) was launched during 1997 in an attempt to enhance market transparency and investor confidence. JSE listing requirements require listed companies to disseminate any corporate news or price sensitive information on the service prior to using any other media or outlet. The JSE automated “Jet” trading system provides warning when company-specific price sensitive information is about to be released on Sens, so that investors can reconsider their share dealings.The JSE can impose sanctions, ranging from fines of up to R25,000 to delisting, on those who do not comply. Companies do not pay for the service, but Sens subscribers (such as electronic news vendors) pay for the real time electronic feed.
- revision of the classification procedure for listed companies occurred in Q2 1999, with the aim of constructing homogeneous sub-sectors which would react similarly to major economic and political trends and events, into which listed companies were divided. The major changes included the combination of the Mining Sector and the Industrial Commodity Sector into a new Resources Sector, the classification of the Property, Property Loan Stock and Property Unit Trust sub-sectors under a new Real Estate Sector and the introduction of additional industrial and financial sub-sectors.
- the introduction of an Internet-based support system to match seekers and providers of capital for small and medium-sized enterprises. The system is known as EEZ (the Emerging Enterprise Zone).
Other possible developments and/or planned changes are:
- closure of the JSE on December 30 and 31, 1999, as a precaution against possible disruption by the Y2K bug.
- the project to introduce an electronic settlement system (Strate – Share Transactions Totally Electronic) to replace the existing manual settlement of scrip, which is currently underway. The Exchange plans to convert around 50 companies a month to the new system from March 1999, completing the process in 2000. Existing paper scrip will be dematerialised and converted to electronic book entries in The Central Securities Depository (CSD). Because Strate needs the same infrastructure to run as the system implemented by the Reserve Bank for the National Payment System and because the Bank has spare capacity on this system, the JSE will rent space on the Bank’s computers. Investors will not be forced to convert to the new system immediately but will be required to dematerialise the paper if they wish to sell their shares in companies that have already converted. The project is expected to cost in the region of R25 million. Stockbroking firms generally welcome the change as it will reduce risk and facilitate reducing settlement from T+5 to T+3.
- a merger with the South African Futures Exchange (Safex) and the Bond Exchange of SA (Besa), agreed to in principle, and expected to come into effect in 1999. Russell Loubser, executive president of the JSE, is expected to take up the position of CEO of the new super exchange.
- demutualising and listing, as bourses have done in other countries.
- forging links between the JSE and other stock exchanges in the Southern African Development Community (SADC) so as to promote international investment in the region. The first evidence of success in this area was during 1998, when trading on the Namibian Stock Exchange switched to being done through a telecommunications link to the Johannesburg Equity Trading system (JET)
- moving from the crime-ridden CBD to the northern suburb of Sandton, where many of the JSE’s major clients and broking firms have moved in recent years.
Investing on the Johannesburg Stock Exchange
There are a number of ways of investing on the JSE.
For the small investor, and the investor who prefers to entrust his/her money to a team of professional investors, there is a wide range of unit trusts (mutual funds) in which he/she can invest. The unit trust industry in South Africa is well developed, with many general and specialised unit trusts to choose from.
The investor who wishes to maintain his/her own portfolio will need a stock broker who is responsive to clients’ needs. There are a number of broking firms in South Africa, some of whom are willing to assist small investors as well as the large institutions. Many of these, such as Rice Rinaldi Securities (Pty) Ltd , will also manage their clients’ portfolios.