South Africa boasts mature capital markets that serve the domestic economy as well as the wider continent. The Johannesburg Stock Exchange (JSE) is the world’s 19th largest exchange, and offers investors five key financial markets: equities, bonds, currency, equity and commodity derivatives.
The JSE was formed in 1887 to facilitate the first South African gold rush. Following the first legislation covering financial markets in 1947, the JSE joined the World Federation of Exchanges in 1963 and upgraded to an electronic trading system in the early 1990s. The bourse demutualised and listed on the JSE in 2005.
In 2003 the bourse launched AltX, an alternative exchange for small and mid-sized listings, followed by the Yield X for interest rate and currency instruments.
The JSE acquired the South African Futures Exchange (SAFEX) in 2001 and the Bond Exchange of South Africa (BESA) in 2009.
With a market capitalisation of $929-billion as of the end of 2012, Johannesburg is the biggest exchange on the continent, significantly larger than both Cairo ($60-billion) and Lagos ($55-billion). It is also highly liquid, with the value of trades hitting R3.4trillion ($418.2-billion) in 2012, up from R3.3trillion ($400.1-billion) in 2011 and R3-trillion ($364.5-billion) in 2010.
There are approximately 400 companies listed on the exchange across Main Board and AltX. While a number of heavyweights like AngloGold Ashanti, British American Tobacco, SABMiller and telecommunications firm MTN account for a large share of the market, the exchange has cultivated a diverse variety of offerings.
The JSE is indexed by the FTSE/JSE Africa Index Series, a partnership between JSE and the FTSE Group. The main two measurements of performance are the All Share Index (ASI), covering 99% of market capitalisation, and the All Share Top 40 Top Companies Index, which tracks the top listings in a representative spread of sectors.
South African bond market
South Africa’s fixed-income market accounts for 96% of the value of all African bonds. The majority of South African bonds are issued by government and state-owned entities but the number of corporate bonds issued is growing.
Bond trading is available on the stock exchange, which also offers over-the-counter depository services and a variety of bond-based derivatives, including bond futures, forward-rate agreements, vanilla swaps and standard bond options.
The JSE is aiming to attract new issuers to the bourse, including those offering rand- denominated foreign notes, which are now treated as domestic securities following a successful negotiation with the South African Reserve Bank.
In November 2012 the Namibian government floated a R850-million ($103.6-million) 10-year bond priced at 8.26%, the first tranche of a R3-billion ($365.7-million) programme, and the JSE hopes to encourage other African countries to list debt on the exchange.
The JSE offers trading of a variety of derivatives, including futures and options on equities, bonds, indices, interest rates, currencies and commodities.
The JSE is ranked the sixth top exchange by number of single stock futures traded and ninth by the number of currency derivatives traded in 2012 in the World Federation Annual Derivatives Survey.
- Website: www.world-exchanges.org
While these regulatory changes will likely hasten the move of trading from OTC to the JSE, the JSE have also taken steps to make the exchange a more attractive platform for this activity. This includes improving transparency in the JSE’s fee structure and continuous product innovation.
More than 110 equities and 50 bond brokers are licensed in South Africa, a mixture of local and foreign outfits. There are more than 100 equity derivatives members, 50 commodity derivatives members and more than 50 currency derivatives members.
The JSE has undertaken major technological upgrades to improve the latency of trading times and embarked on reform of the clearing and settlement timeframe.
In July 2012 the JSE implemented a new trading platform the Millennium Exchange in the equities market, while at the same time moving the trading system from London to Johannesburg.
Following this successful transition trades can now be executed up to 400 times faster than under the previous TradElect system. The change allows for increased liquidity and more high-frequency traders.
The JSE currently acts as the frontline regulator, setting listing requirements and enforcing trading rules. The Financial Services Board (FSB) supervises the JSE in the commission of its regulatory duties and, as the JSE has no criminal or civil jurisdiction, processes any cases where statutory legislation has been contravened.
The regulatory landscape is set to change significantly in the near future, as South Africa looks to implement a twin peaks model of oversight. Under the new system, prudential supervision will be transferred to the South African Reserve Bank (SARB) and market conduct regulation will be led by a bolstered FSB.
The JSE will continue to act as frontline regulator while it will report to the FSB as the lead regulator, a concept endorsed in 2012 to avoid overlaps in jurisdiction between the FSB and the Reserve Bank.
South Africa is currently ranked 1st in the world in terms of regulation of securities exchanges in the World Economic Forum’s Global Competitiveness Survey for 2012- 2013. This is an accolade for both the JSE its regulators.
In 2011, South Africa’s inward listing rules were changed to allow foreign domiciled companies to be treated as domestic listings. While foreign firms had been allowed to list on the JSE since 2004, they had been subject to foreign exchange rules, which limited the amount of these equities that local investors could hold. The lifting of these restrictions has been an important regulatory shift for the exchange makes the JSE a more attractive listings destination.
Information supplied by the JSE. For more, visit www.jse.co.za
Reviewed: 6 June 2013
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