Interview: Nicky Newton-King
How do you evaluate the sector’s overall regulation?
NICKY NEWTON-KING: South Africa has a very interesting regulatory ecosystem, where we as the exchange act as “front line” regulators by setting the listing requirements and trading rules, while the Financial Services Board supervises us in the execution of our regulatory duties. This approach is very different from other exchanges that prefer to act purely as service providers.
Some 15 years ago, cartoons depicted the JSE trading floors with cowboys, as transparency and audit trails were highly lacking. We have since worked extremely hard to evaluate and improve every element of our regulatory DNA, and are today considered to have some of the best regulations in the world. However, one never wants to be the single most highly regulated global market, as regulations can be overly constrictive and you can regulate somebody out of business. You need to allow people to make some mistakes, as businesses must take risks. But you want to make sure that companies do business in an appropriate manner that is fully disclosed, so investors can then make an informed decision on the risk the business is undertaking.
We are also mindful that South African companies form a deep part of our nation’s socio-economic transformation. So there will always be an element of trying to find a way to allow companies to raise money with innovative structured products. Rather than the US regulatory structure, where everything is based on rules, we prefer to take a principles-based approach. If someone has a good idea, even if it is not in the rules, we will look at if it aligns with what we are trying to achieve and try to make it work as best as possible.
What impact will the reclassification of inward listings have on attracting new listings?
NEWTON-KING: This move is inline with our wider strategy to become a place where South Africans can trade in anything they want, and not just in South African instruments. As soon as you allow inward listings to trade using local money and to be part of local indices, listing becomes much more attractive to a great number of international issuers.
We also realise that companies worldwide are not in an initial public offering and listing mind set, and that we are competing in a low interest rate environment with private equity and other means of corporate funding. So we have to start looking at additional instruments to dual listings, such as derivatives or depository receipts, which provide investors’ access to companies without the companies having to go through listing.
How would you rate the JSE in terms of connectivity with emerging markets?
NEWTON-KING: A lot of effort over the years has gone into increased cooperation between African exchanges, with not enough results. There are three core areas to explore further. The first is cross listing, the second is facilitating greater order routing between exchanges and the third is building capacity. There is a real desire among the continent’s 24 exchanges to operate on more sophisticated levels. The JSE, as an exchange that sees technology as an enabler for growth and always strives to be an early adopter, can play a strong role when it comes to the process of sharing information.
What we have to be pragmatic about is the low likely hood of ending up with a single African exchange. What is more realistic is to design the best way to provide access to the continent, which is not through 24 separate exchanges, but through regional hubs that provide easy access to trading on the continent and fairly distribute the economic benefits of that trading.
Our indices continually have to evolve according to what clients want. We have formed an alliance with the Brazil, Russia, India and China (BRIC) exchanges to allow a rand traded derivative on each of their benchmark indices. We in turn also allow them to place local currency derivatives of our top 40 traded stocks on their local exchanges. On the back of this, we should eventually end up having a “composite” BRICS index that has been sponsored by each of the individual exchanges.
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