The JSE Securities Exchange (JSE), formerly known as the Johannesburg Stock Exchange, has been through a decade of almost continual change. It began in May 1994 with the publication of a research report into the structure of the JSE, and the subsequent changes have affected every aspect of the structure, operation and ownership of the exchange.
The so-called "big bang" started with the introduction of corporate membership and the abolition of the requirement that only South African citizens could be stockbrokers in this country. This paved the way for the large international corporate brokers to establish businesses in South Africa, and saw the likes of HSBC, JP Morgan, Merrill Lynch and Salomon Smith Barney become members of, and begin trading on, the JSE.
The next dramatic change was the closure of the open outcry floor on June 7, 1996 and the introduction of a computerised order-driven, centralised, automated trading system, known as JSE Equities Trading. This change was accompanied by the introduction of negotiated brokerage. Then, on August 18, 1997, came the launch of the Stock Exchange News Service - commonly known as SENS - a real-time news service for the dissemination of company announcements and price-sensitive information.
Perhaps the most dramatic and noticeable change for investors was the introduction in 1999 of electronic clearing and settlement - Share Transactions Totally Electronic (Strate) - that swept away the old paper-based share certificate settlement system.
Now another change is upon us. At a meeting on May 26 this year, the individual and corporate members of the JSE, who owned the exchange by virtue of holding rights, approved the demutualisation of the institution. The new era was ushered in on July 1, 2005 when the JSE became a public limited company.
In the past, the ownership of the exchange was inextricably linked with the right to be its members. Under the new demutualised dispensation, any person will be free to purchase shares and become part owners of the JSE, and ownership of shares will no longer be a requirement for membership.
In order to create a market for the shares, the JSE will facilitate an "over-the-counter trade" using its own trading system and Strate as the settlement agent. It is to be expected that at some time in the future the JSE will list its own shares on the exchange as other international stock exchanges have already done.
To give effect to the demutualisation, all existing right holders will receive 1 000 new JSE Limited shares in exchange for each right. But as a result of a statutory requirement, no single shareholder may own more than 15 percent of the shares in issue.
The JSE has been giving this consideration for some time, but the final push came in the form of amendments to the Income Tax Act that resulted in the exchange losing its tax-exempt status. This will not seem a particularly compelling reason to many, given the fact that most other mutual and limited companies and institutions have been paying tax for decades.
The change may also confound many, given that the JSE board and executive management will remain the same, the operations of the exchange and its contractual relations will not be affected, and that no capital-raising is to be undertaken. So, the fact of the matter is that the change will have no impact whatsoever on ordinary investors, save for the fact that they will be in a position to purchase shares in the JSE.
On announcing the latest change, Russell Loubser, the chief executive of the JSE, said, "Demutualisation is an exciting milestone in the JSE's history. It offers the JSE additional capital-raising opportunities and will allow us to implement more easily a broad-based black economic empowerment strategy. It also lays the foundation for the listing of the JSE and puts us on a par with our international competitors."
As ever, the cynics will be watching out for the "snouts-in-the-trough syndrome" as directors, executive management and staff are plied with lavish share options or allocations. Fortunately, the JSE has a good track record of remuneration disclosure, and in view of the fact that its size and profitability as a listed company will be far more modest that many of its current listings, this temptation, should it exist at all, will be tempered. But the long and the short of the JSE demutualisation is that it will have little impact upon anyone, and it is very much business as usual.
David Sylvester is the chairman of the Shareholders' Association, telephone (021) 686 7567.
This article was first published in Personal Finance magazine, 3rd Quarter 2005. See what's in our latest issue