JSE: Africa’s biggest Exchange

The Johannesburg Stock Exchange (JSE) is Africa’s largest stock exchange and one of the most dynamic investment jewels in the world. Situated in Africa’s richest square mile, Sandton, the JSE has positively grown and has further shown signs of vast financial capital increase.

This is testified by the fact that in 2003 the JSE had an estimated 472 listed companies and a market capitalisation of US$182.6 billion (€158 billion), as well as an average monthly traded value of US$6.399 billion (€5.5 billion). As of 31 December 2013, the market capitalisation of the JSE was at US$1,007 billion.

The JSE provides a market where securities can be traded freely under a regulated procedure. It not only channels funds into the economy, but also provides investors with returns on investments in the form of dividends.

The exchange successfully fulfils its main function—the raising of primary capital—by rechannelling cash resources into productive economic activity, thus building the economy while enhancing job opportunities and wealth creation.

The JSE Ltd is licensed as an exchange under the Securities Services Act, 2004 and Africa’s premier exchange. It has operated as a market place for the trading of financial products for nearly 120 years. In this time, the JSE has evolved from a traditional floor based equities trading market to a modern securities exchange providing fully electronic trading, clearing and settlement in equities, financial and agricultural derivatives and other associated instruments and has extensive surveillance capabilities. The JSE is also a major provider of financial information. In everything it does, the JSE strives to be a responsible corporate citizen.

 

Background of the JSE

According to the InvestorWords website, the Sandton-based institution is defined as a stock exchange where stocks are purchased and sold: “It is the largest stock exchange on the entire African continent and is primarily dominated by mining companies. This is due to the fact that it was originally established in 1887 by the mining industry as a way to raise funds.”

Information that listed companies share with their investors, either voluntarily or due to their listing obligations, may affect the price of securities trading on the JSE. There are two divisions a company may choose to be listed under – the Main Board or the Alternative Exchange (AltX).

Tracing the history of the JSE reveals that the Johannesburg Exchange & Chambers Company was established by a London businessman, Benjamin Minors Woollan and housed at the corner of Commissioner and Simmonds Streets. Out of this the JSE was born on 8 November 1887. By 1890 the trading hall became too small and had to be rebuilt but this too was outgrown. Trading then moved into the street. The Mining Commissioner closed off Simmonds Street between Market Square and Commissioner Street by means of chains.

In 1903, a new building was built for the JSE on Hollard Street. It was a storey building that took up an entire whole city block bounded by Fox and Main, Hollard and Sauer Streets.

After World War II, it became apparent that this building was again inadequate and in 1947 the decision was made to rebuild the stock exchange. It took 11 years before construction began and in February 1961 the second exchange at Hollard Street was officially opened. By 1963, the JSE became a member of the Federation International Bourses de Valeurs (FIBV).

In 1978, the JSE took up residence at 17 Diagonal Street near Kerk Street, Johannesburg. 1993 saw the JSE become an active member of the African Stock Exchanges Association. After 108 years, the open outcry system of trading was changed to an electronic system on 7 June 1996.

In September 2000, the Johannesburg Securities Exchange moved to its present location in Sandton, Gauteng and changed its official name to the JSE Securities Exchange.

In 2001 an agreement was struck with the London Stock Exchange enabling cross-dealing between the two bourses and replacing the JSE’s trading system with that of the LSE.

In 2009 the JSE acquired the Bond Exchange of South Africa for R240 million and rebranded it the JSE debt market adding South African government and corporate bonds as well as interest rate derivatives to its product set.

On 18 June 2012, the JSE became a founding member of the United Nations Sustainable Stock Exchanges initiative on the eve of the United Nations Conference on Sustainable Development (Rio+20).

On 14 April 2014, the JSE re-branded to demonstrates the bourse’s identity as a modern African marketplace that connects investors to growth opportunities not only in South Africa but globally.

A Stock Exchange News Service (SENS) was launched in 1997, offering real time prices. Listed companies are expected to disseminate any corporate news or price-sensitive information on the service prior to using any other media outlet. SENS aims to ensure early, equal and wide dissemination of any information that may have an effect on prices, and improves communication between listed companies and the investing community.

 

Nicola Newton-King is the Chief Executive Officer of the JSE Ltd. She also serves as a member of the Financial Markets Advisory Board. Newton-King previously served as Deputy Chief Executive Officer of the Johannesburg Stock Exchange. She was one of the primary drafters of the Insider Trading Act, a world leader of its kind.

 

JSE Top 40 Outline

 

The JSE Top 40 Index refers to the top 40 biggest companies trading on the exchange. These are professionally ranked by market capitalisation (market cap). The market cap of a company is the number of shares outstanding times the current share price.

The Top 40 index is a fair reflection of what happens to the South African market as a whole, because even though it contains only 40 out of the roughly 400 shares listed on the JSE, it represents over 80% of the total market cap of all JSE listed companies.

There are five indices that make up the Headline Category: the All Share Index (J203), the Top 40 Index (J200), the Mid Cap Index (J201), the Small Cap Index (J202) and the Fledgling Index (J204). These indices comprise eligible instruments, listed on the JSE Main Board, and are categorised according to company size (market capitalisation).

The All Share Index represents 99% of the full market cap of all eligible equities listed on the Main Board of the JSE. The All Share Index can further be split by size into the Top 40, Mid Cap & Small Cap Indices.

Core group

In 2012, a core group of five stock exchanges – NASDAQ OMX, BM&FBOVESPA, the Johannesburg Stock Exchange (JSE), the Istanbul Stock Exchange (ISE) and The Egyptian Exchange (EGX) – announced a commitment to promote long-term, sustainable investment in their markets.

The announcement came amid high-profile discussions among governments on the role of the private sector – including finance – in building a green economy and the importance of corporate sustainability reporting, on the eve of the United Nations Conference on Sustainable Development.

These leading exchanges, with over 4,600 listed companies in developed and emerging markets, have voluntarily committed to work with investors, companies and regulators to promote long-term sustainable investment and improved environmental, social and corporate governance disclosure and performance among companies listed on their exchange.

The JSE also aligned their equities trading model with that of Europe, and reclassified their instruments in line with the FTSE Global Classification system. This has led to the introduction of the FTSE/JSE Africa Index Series that makes the South African Indices comparable to similar indices worldwide.

Implementation was completed in June 2002, and opened by South African President Thabo Mbeki and British Deputy Prime Minister John Prescott, who described the deal as an historic partnership. The investment community is now served by one of the most reliable trading platforms worldwide. Trade information of instruments listed on the JSE can now be disseminated by the LSE to more than 104 000 trading terminals around the world, raising the profile of the JSE among the international investor community.

 

Main Board

 

While a number of heavyweights account for a large share of the market capitalisation of the JSE’s Main Board, a diverse range of companies of different sizes and sectors can be found on this board. The majority of the JSE’s market capitalisation is based on the companies listed on the Main Board and the JSE’s top 40 stocks are also listed here. Other securities such as Exchange Traded Funds (ETFs), Exchange Traded Notes (ETNs) and Warrants are also listed on the JSE’s Main Board.

Entrepreneurs that successfully grew their businesses and later listed them on the JSE Main Board include IT billionaire Robert Gumede and actuary turned entrepreneur Adrian Gore. Gumede is now executive chairman of the Gijima Group, a company he founded and which is now listed, while Gore is CEO of the Discovery Group.

An example of a small cap company that first listed on the JSE’s AltX and later on the JSE’s Main Board is restaurant chain group Taste Holdings founded by Carlos Gonzaga who is CEO of the company.

 

The JSE Business

The JSE’s holding company JSE Ltd was listed on the Main Board in June 2006. Today JSE Ltd’s market cap (or worth) stands at over R8,1 billion.

In the JSE’s audited abridged annual results and cash dividend declaration for the twelve months ended 31 December 2013, as made public on 11 March, the group showed improved financial performance in a unstable economy. The groups says their earnings after tax for 2013 increased by 68%, this was to a high of R507 million last year as compared to R302 million made in 2012.

The JSE attributes this growth to a “strong operating revenue growth” from most of their products and services. This included “tightly controlled” operating costs, which went up by 5% to R1,08 billion in 2013, compared to R1,03 billion the year before to that.

The company performed well last year and rewarded their staff accordingly. “Staff costs increased by R45 million (12%) to R405 million following a flat headcount, annual salary increases of R17 million (6%), a reduction of R18 million in the amount of staff costs capitalised and a larger bonus pool following significantly better financial results than in 2012,” the group said.

 

Investor Tips

The JSE describes itself as the “engine room” of the South African economy, providing an orderly market for dealing in securities. Its main function is to facilitate the raising of primary capital by re-channelling cash resources into productive economic activity, and building the economy while enhancing job opportunities and wealth creation. The JSE also provides an effective price determination facility and price risk management mechanism.

The JSE is privately owned and funded, and governed by a Board of Directors. Its activities are licensed and regulated by two Acts of Parliament, namely the Stock Exchanges Control Act, 1 of 1985 (“SECA”), which governs the equities markets, and the Financial Markets Control Act, 55 of 1989 (“FMCA”), which governs the derivatives markets.

In keeping with international practice, the JSE also acts as regulator of its members and ensures that markets operate in a transparent manner, ensuring investor protection. Similarly, issuers of securities must comply with the JSE Listings Requirements, which aim to ensure sufficient disclosure of all information relevant to investors.

The JSE’s roles include regulating applications for listing, and ensuring that listed companies continue to meet their obligations. The JSE monitors applications for alterations to existing listings, and scrutinises company disclosures to the public. The JSE also provides a Stock Exchange News Service (SENS) through which company news, including price-sensitive information, is distributed to the market.

The JSE has been bold in restructuring in the light of increasingly tough global competition, adopting new technologies and outsourcing aspects of its business.

 

JSE TradElect

The JSE’s fully automated (electronic trading) trading system is called the Millennium Exchange, which replaced the JSE TradElect system in 2012, which in turn had replaced the JSE SETS system in April 2007, which had replaced the JSE JET system in May 2002.

The change to the Millennium Exchange involved moving the platform from London to a new platform housed in the JSE building in Johannesburg, thus speeding up the execution of transactions. The JSE operates an order-driven, central order book trading system with opening, intra-day and closing auctions.

 

Fees and taxes

Securities Transfer Tax (STT) 0.25%. Applies to share purchases only, not share sales.

Strate 0.005459% (excluding VAT ) based on the value of the share transactions:

Minimum R10.92 for trades with a value up to R200,000.

Maximum R54.59 for trades with a value over R1 million.

FSB Investor Protection Levy 0.0002% (excluding VAT) on all trade

The JSE is a truly global brand which demonstrates the bourse’s identity as a modern African marketplace that connects investors to growth opportunities globally.

 

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