JSE to review its listing requirements

The JSE Limited released half-year results on Thursday afternoon, showing a 7% growth in group revenues and a 34% increase in headline earnings per share. After a soft 2017, the numbers showed an increase in activity across all of the group’s market segments.

“It is a reflection, certainly in the first quarter of the year, of a more positive sentiment in the country,” said the exchange’s CEO, Nicky Newton-King. “Volumes were slightly softer in the second quarter, but it was certainly a much better first half than last year.”

The increase in trading activity was however somewhat clouded by the number of serious issues relating to listed companies that the JSE has faced in the last few months. The accounting fraud being revealed at Steinhoff, the questions around valuations in the Resilient group of companies, and recent issues at EOH have placed a lot of attention on the JSE’s ability to successfully regulate listed entities.

Read: Four concerns for JSE investors

Investors are looking for answers

The exchange has received a lot of criticism from investors and market watchers who have felt that these are issues that the JSE should have picked up on sooner. Newton-King accepts that these concerns should not simply be dismissed.

“I completely understand why people would be looking for answers,” Newton-King said. “When the likes of a Steinhoff shock comes out of the blue, investors will ask how this could have happened in an environment which is properly regulated.”

This has, without doubt, also had an impact on the exchange’s reputation.

“Even if there was a Steinhoff failure and it had nothing to do with us – even if you couldn’t question a regulatory or disclosure standard – people would still feel that there is something more someone should have done,” Newton-King acknowledged. “And we will be in that line of organisations that investors would look to and say: you should have done something.”

She did however argue that instances where people set out deliberately to deceive are difficult to pick up.

“What all exchanges try to do is set listing requirements that are at an appropriate level to encourage entrepreneurs to come to market, and then require appropriate levels of disclose, so that investors get the right information comprehensively enough, in plain English,” said Newton-King. “However, somebody who is intent on deceiving an investor or a market, will, I think, be quite hard to catch out.”

Waiting for action

With regard to trading conduct and allegations of market manipulation, she said that the JSE takes its role very seriously, and is constantly monitoring activity. However, even where it does detect problems it cannot take action itself.

“I have a lot of sympathy for commentators who say that when activity happens and we see trading that we think feels a bit funny, why don’t we see any action being taken?” Newton-King acknowledged. “However, the JSE’s role is to review the activity on its market and when we feel it’s worthy of further investigation under the legislation, we pass it onto the Financial Sector Conduct Authority (FSCA). That is the legal entity responsible for taking action.”

She noted that last week the FSCA released a comprehensive breakdown of the market abuse cases currently under investigation. This includes 17 cases of possible insider trading, 14 possible cases of market manipulation, and nine cases of possible false or misleading reporting.

“What I think is also concerning for people is that these investigations take place, but it takes a long time for due process to happen,” Newton-King noted. “Unfortunately the reality is that it does take time to investigate. That might feel unsatisfactory, but the rule of law does require proper process.”

Under review

The problems that have arisen over the last year have however required the JSE to look at whether it needs to tighten any of its standards.

“We have taken a very hard look at what has happened, and where there might be areas that we need to increase our listing requirements, or change disclosure requirements in certain areas,” said Newton-King. “We will be issuing a white paper in this regard with quite substantial suggestions for public comment in a couple of weeks, because certainly there are areas of disclosure we think could be improved, and we might also want to change the way we look at inward-listed, dual-listed companies.”

This could lead to important changes. However, it does not mean that the JSE feels that it has acted inappropriately with regards to any of the recent issues.

“I am quite confident about the fact that the level at which we regulate, and the diligence with which the team has looked at all of these issues will, once the full process has taken its course, be found to be absolutely appropriate,” Newton-King said.

What is important, she feels, is always being prepared to ask if more could be done.

“We have to work hard everyday to make sure that the ecosystem is one in which people do have confidence, and therefore if regulatory standards need to change, if disclosure standards need to change, we will do that,” Newton-King said. “But we shouldn’t confuse that with the fact that it will never, ever stop people who are intent on avoiding the ambit of the law.”