SA's financial watchdog approves JSE main board split

Garth Theunissen
The Financial Sector Conduct Authority (FSCA) has approved amendments to the Johannesburg Stock Exchange's (JSE) listing requirements that will allow the bourse to split its main board into two distinct segments.
The regulatory approval, which was announced last week, means the JSE can now implement its plan, first outlined in April, to restructure its main board into a 'prime' segment and 'general' segment.
"The new market structure aims to provide a fit-for-purpose regulatory framework for smaller companies listed on the main board," André Visser, the JSE's director of issuer regulation, told News24. "The general segment will offer significant cost savings, easier financial reporting, and greater flexibility for company boards, with the new rules taking effect on 23 September."
It will certainly encourage companies to retain their JSE listings because the general segment provides them with a more flexible regulatory framework. New listings will also see they have more options available to them on the general segment.
The JSE currently has a two-tiered equities market: Its main board and alternative exchange, or AltX, with the latter being a junior market established in 2003 to help small and medium enterprises (SMEs) access the equity capital market.
Classification into the new general segment is only available to main board issuers that are not included in the FTSE/JSE All Share Index, which has specific free float and liquidity requirements.
Liquidity refers to how often a share is bought and sold, while free float means the shares are not tightly held by long-term shareholders, such as company founders. "This will typically be suitable for smaller and medium-sized companies where there's not much trade in those counters. The relief provided by the new general segment of the main board is focused on these companies," Visser explained.
"We expect about 116 companies on the main board will potentially be eligible to apply for listing on the general segment."

Significant cost savings
Under the new market segmentation structure, the JSE's prime segment would cater to larger entities with greater liquidity, which would continue to be subject to stricter listing requirements.
The general segment, on the other hand, would afford meaningful regulatory relief to smaller equity issuers while still maintaining transparency and disclosure to support investor confidence.
The JSE said the new general segment will provide significant cost savings, cheaper financial reporting requirements and greater flexibility to company boards to manage the businesses they lead. Applications for listings on the JSE's new general segment will open on 23 September, although classification into the general segment is only available to main board issuers who are not included in the FTSE/JSE All Share Index.
"A company on the AltX that wants to get access to the general segment must first qualify to be listed on the main board," Visser said.
"They must meet the profit and capital requirements, and then once they transfer on to the main board, provided they don't fall into the All Share Index, they can apply for inclusion in the general segment."
The effective launch date of the JSE's new general segment will be communicated to sponsors shortly, pending certain administrative processes that the bourse operator needs to finalise.

More leeway
Companies listed on the JSE's general segment will have automatic annual rolling general authority to issue new shares for cash without shareholder approval up to 10% of their issued share capital.
However, pricing parameters will be in place so that new shares must be issued at a price that is within 10% of the weighted average share price over 30 days. "It's just a protection mechanism for shareholders to make sure there isn't unnecessary dilution," Visser noted.
The general segment will also give companies a general authority to buy back shares without shareholder approval, provided these repurchases don't exceed 20% of their issued share capital in any one financial year.
Pricing parameters will also be in place so that they repurchase the shares at a premium of no more than 10% of the company's five-day weighted average share price.
General repurchase authority allows for shares to be bought in the open market from unknown counterparties. In instances where companies on the general segment wish to conduct share buybacks from specific or known counterparties, they won't need shareholder approval provided the transaction does not involve related counterparties and the buybacks don't exceed 20% of issued share capital in any one financial year.
The definition of a material shareholder will also be increased to 20% from 10%, while companies on the general segment will now have four months from their financial year-end to publish their annual results and annual reports, without the need to release condensed reviewed results within three months.
General segment companies will also not be required to obtain independent fairness opinions when conducting related party transactions or corporate actions, provided the related parties or associates are excluded from voting. Instead, more focus will be placed on governance and transparency, with boards having to advise if such deals are fair.
Agreements for such related party deals or corporate actions must also be open to inspection so investors can hold boards accountable.

Threshold for transactions
When doing large transactions, companies on the general segment will no longer be required to prepare pro forma financial information detailing the financial impact of the deal. Instead, they will be permitted to provide a detailed narrative to illustrate the impact on their results.
The threshold for transactions regarded as Category 1 will also be raised from 30% of a company's market capitalisation to 50%, while such deals will also only require two years of audited financial statements rather than the current three.
Category 1 transactions require the board to convene a shareholder meeting to approve the deal.
In the future, companies listed on the JSE's general segment will not be required to disclose small-related party transactions if they are smaller than 3% of their market capitalisation from 0.25% currently.
The threshold for convening a shareholder meeting to approve small-related party transactions also increases from the current 5% of the acquiring company's market value to 10%. "This will provide more flexibility and cost savings, but still retains full transparency as any small-related party transaction between 3% and 10% of a company's market value would require an announcement as well as an opinion by the board, while the agreements would have to be open to inspection," he said.

Expanded framework
Apart from its market segmentation reforms, the JSE also announced last Tuesday that it had expanded its secondary listings framework by adding Tadawul, the name of the Saudi exchange, as well as all the Euronext exchanges in Dublin, Paris, Milan, Lisbon and Oslo to its list of approved and accredited exchanges.
That means Tadawul and Euronext exchanges are included in the group of global exchanges recognised for fast-track secondary listings on the JSE, meaning it is easier for any stock listed on those bourses to obtain a secondary listing in Johannesburg.
The other accredited exchanges include the London Stock Exchange, Australian Securities Exchange, New York Stock Exchange, Toronto Stock Exchange, Singapore Stock Exchange and Hong Kong Exchanges and Clearing Ltd. Euronext Amsterdam and Brussels are also already on the list of approved and accredited exchanges.
"Now that Tadawul and Euronext exchanges are approved in our secondary listings framework, we can look to attract more companies by making it easier to secondary list on the JSE," Visser explained.

-FIN24-