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.
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.
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.