JSE consultation paper aimed at enhanced investor confidence



On 19 September, the JSE Limited (JSE) released a consultation paper on "possible regulatory responses to recent events surrounding listed issuers and trading in their shares". The JSE's regulation of the South African financial markets has been scrutinised by the investment community following a series of financial and trading scandals that rocked several JSE-listed companies.

The JSE consultation paper suggests possible broad-ranging amendments to the JSE Listings Requirements (Listings Requirements). However, the JSE has made it clear that the purpose of the paper is not to implement suggested amendments to the Listings Requirements. The aim of the paper is to raise certain possibilities for consideration and encourage broader stakeholder input in order to address concerns about the JSE's and other financial markets role-players' ability to properly regulate listed companies.

Enhanced focus on corporate governance of listed companies

A key theme of the consultation paper is the need for a robust corporate governance oversight of listed companies.

  • Non-binding advisory vote on corporate governance
  • One of the most far-reaching proposals of the paper relates to a non-binding advisory shareholder vote on the corporate governance report of listed companies. Currently, listed companies are required to disclose in their annual report how they have complied with the principles of the King IV Report on Corporate Governance for South Africa (King IV). The JSE's proposal for a non-binding vote of the shareholders on the corporate governance report therefore goes further than the recommendations of King IV. In addition, as is the case with the non-binding vote on remuneration, the JSE suggests that if the corporate governance report is rejected by shareholders exercising 25% or more of the votes exercised, the company must invite dissenting shareholders to engage on these issues.

  • Mandatory policy and non-binding advisory vote on board diversity
  • The JSE is also considering introducing a requirement that boards establish and publish a policy regarding board diversity, which goes beyond the current Listings Requirements on race and gender policies. The JSE is of the view that boards should promote diversity in membership across a variety of attributes, including field of knowledge, skills and experience as well as age, culture, gender and race in order to enhance the diversity of views and independence in the boardroom. The JSE goes as far as mooting a non-binding shareholder advisory vote on board diversity.

  • Disclosure of and compliance with applicable laws
  • The JSE proposes to align its requirements with King IV's recommendations on compliance governance. King IV (principle 13) recommends that the board disclose arrangements for governing and managing compliance with applicable laws. The JSE suggests that companies should disclose in their pre-listing statement the laws applicable to the company in relation to its establishment and main industry operation. The company would also be required to include a positive affirmation in their pre-listing statement and their annual report in relation compliance with these laws. This proposal has potential far-reaching consequences for companies operating in heavily regulated industries. It remains to be seen whether, if implemented, this possible requirement will be subject to material compliance and / or material laws.

Other key areas for consideration

  • Stricter listing criteria for primary listings:​
    • subscribed capital requirement - currently, issuers applying for a listing on the Main Board of the JSE and who do not meet the profit requirement (ZAR 15 million), are required to have ZAR 500 million in subscribed capital, which may be raised through the listing process. The JSE suggests increasing the minimum subscribed capital requirement which was established in 2007 and requiring that it be in place before any capital raising through the listing process;
    • shareholder spread requirement - 20% of each class of a company's securities must be held by public shareholders to qualify for listing on the JSE. The JSE is considering further narrowing down the definition of public shareholders by excluding (i) persons closely affiliated with directors or management, (ii) employees of the issuer and (iii) shares held subject to lock-up provisions. The JSE also proposes that independent board members of the issuer confirm compliance with this requirement in writing to the JSE and in the issuer's pre-listing statement;
    • listing announcement - the JSE is considering imposing a longer period on issuers to publish an announcement on SENS regarding a listing to give appropriate time for investors to analyse the listing. The JSE suggests extending the notice period from five to ten business days prior to listing.
  • Stricter regulation of secondary listings:
    • pre-approved list of foreign exchanges - currently, companies with a primary listing on foreign exchanges that are members of the World Federation of Exchanges are permitted to seek a secondary listing on the JSE. The JSE is considering being more selective on the jurisdictions it accepts for secondary listings. The JSE wants to satisfy itself that those jurisdictions' regulatory regime is broadly equivalent to South Africa's regime for primary listings;
    • power of JSE to impose additional continuing obligations on secondary listed companies - currently, a company with a secondary listing on the JSE need only comply with limited Listings Requirements. The JSE is contemplating provisions enabling it to prescribe additional conditional obligations where the primary exchange regulator has relaxed its requirements and the JSE is no longer satisfied with the level of continuing obligations imposed by the primary exchange;
    • restrictions on moving primary listing from the JSE to another exchange while retaining a secondary listing on the JSE.
  • Mandatory training for audit committee members to ensure they have the requisite competence and experience to fulfil their duties in terms of the Companies Act, 2008 and the Listings Requirements (prior to listing and on an ongoing basis);
  • Mandatory training for company secretaries on the Listings Requirements (prior to listing and on an ongoing basis);
  • Mandatory announcement relating to the conclusion of security arrangements whereby securities held by directors and senior management are pledged as collateral or guarantees for financial obligations, and related disclosure in the annual report of the issuer.
Role and responsibilities of other stakeholders

The JSE emphasised that it cannot alone be held to account to provide solutions to recent concerns raised by the investment community. In this respect, the JSE has proposed a number of additional measures that are, strictly speaking, outside its regulatory remit which it believes could further bolster investor confidence. The JSE encourages all stakeholders and other "guardians of governance" (including asset managers, retirement funds, trustees, analysts, auditors) to engage with the JSE to analyse their roles in providing appropriate and effective checks and balances for South Africa's financial markets.

In addition to the measures discussed above, the JSE also indicated that it is supportive of the Financial Sector Conduct Authority's (FSCA) efforts to introduce a regime whereby information on short sales of listed securities is provided to the investing public and relevant regulators. The JSE also communicated its intention to commence publishing monthly statistics on the number of instances in which trading activity has been referred by the Market Regulation Division to the FSCA for possible investigation of potential market abuse.

Consultation process

Public comments should be submitted to the JSE by 22 October 2018. The consultation process will inform the JSE's decision whether to propose any formal amendments to the Listings Requirements. If amendments to the Listings Requirements are required, these will be subject to the standard approval process pursuant to the Financial Markets Act, 2012. ​​​​​​​​