JOHANNESBURG SECURITIES

EXCHANGE 1

Prof. de Jager
Who owns the JSE?
 Lecture plan

• Context – players in SA

• JSE history and facts

• JSE characteristics

• Conclusion
 Players in SA

• Brokers
• The Public Investment Commissioners (PIC)
• Insurance companies
• Investment managers
• Unit trusts
• Pension and Provident funds
• Private trusts
• The Financial Services Board (FSB)
• Over-the-counter (OTC) market
• The Johannesburg Securities Exchange (JSE)
 Stockbrokers

• Can act as both:

– Agents
– Principal (i.e. buy for their own account)

• Charges commission as agents and facilitators of trading

• Only accredited institutions allowed to operate within an

exchange

• “Soft dollars”: provision of free research to institutional

clients in hope of getting more trading business
 Public Investment
Corporation
• The largest investment manager in SA
– assets under management of R 1.857 trillion (31 March 2016)

• About 12.5% of listed equities (and 42% of government

bond market)

• Manages pension funds of the SA public service (mainly

GEPS)

• Increasingly, shareholder activist and empowerment

focus
– not only maximisation of returns for pension-fund members

• Few small contentious investments in last few years

(Total SA, Independent Media, etc.)
 Insurance companies

• Cash outflow commitments towards clients (life insurance

companies) or cash outflow risk (short-term insurance)

• Portfolio of assets (including equities) to match liabilities

• Assets should deliver returns over time to fund liability

outflows. Asset income streams should ideally match
expected liability outflows

• Often long-term holders of equities and engage in script

lending (lending their shares to short sellers for a fee)
 Investment managers

• Invests money on behalf of clients

– pension funds, wealthy individuals, retail investors (mainly
in mutual funds).

• Charges fee for managing investments

– % of funds under management
– plus %of performance that is better than an agreed-to
benchmark
 Financial Services Board

• Established by statute but funded by SA financial industry

• Oversees regulation of financial markets and institutions

• including JSE, insurers, fund managers, stockbrokers

• But not banks, which fall under SARB. Market conduct of

banks under FSB.

• Has authority to close down a financial services business

(e.g., Fidentia) in order to protect investors etc.
 SA over-the-counter
markets
• No official OTC for equities in SA at the moment.

• BJM and PSG operated OTCs until the FSB closed them
down over a legal technicality in 2006.

• The combined value of the shares trading on these two

OTCs at the time was R20 billion.
 SA over-the-counter
markets
• No official OTC for equities in SA at the moment.

• BJM and PSG operated OTCs until the FSB closed them
down over a legal technicality in 2006.

• The combined value of the shares trading on these two

OTCs at the time was R20 billion.
JSE history
 JSE stats & facts

• Daily trade averages over $1 511.8 million.

• Total Market Cap (JSE): $951 320 million.
• 16th in the world by Market Cap.
• Largest of the 29 African markets by far.
• Market liquidity (2016): 39%
• Privately owned and funded (public Ltd company).
• Governed by a Board of Directors.
• Functions as both primary and secondary equities
exchange.
• Equities markets regulated by the Financial Markets Act
of 2012
Concentration on the JSE –
large and small companies
Concentration on the JSE –
commodities & FINDI
 Conclusion

• Players in SA market

• JSE monopoly in capital market

• Concentration in SA equity market

– Large and small companies
– Two factor market