JSE soon to host the General Assembly of World Exchanges

September 20, 2011


By Humphrey Borkum, Chairman of JSE Limited.

As the JSE prepares to host the 51st general assembly and annual meeting of the World Federation of Exchanges (WFE) in Johannesburg next month, South Africa can be proud of the status and quality of the financial institution that will welcome the delegates.

In the latest Global Competitiveness Report of the World Economic Forum the JSE was once again placed first in terms of market regulation and we have now moved up from seventh to fourth in the provision of equity market finance. Also pleasing is that in the soundness of our banks we have moved up four places to second. Our highly-rated accountancy firms repeated their first place in strength of auditing and reporting standards.

I always remind myself that this is South Africa Inc. competing with 138 other countries and the comparison is not merely against developing countries but against the top developed countries in the world. Congratulations are due to all concerned and also to the financial departments in government.

The WFE is the association of 52 regulated exchanges around the world that develops and promotes standards in markets. WFE exchanges are home to over 45 000 listed companies. Total market capitalisation of WFE members in 2010 amounted to 54 trillion dollars with approximately 63 trillion being traded on member exchanges in the same period. We are expecting 180 delegates from over 40 countries.

This assembly represents the largest and most widely attended gathering of global exchange leaders. Russell Loubser, CEO of the JSE, is both a director and treasurer of the WFE. As he says: ”Exchanges stand in line and compete for this honour just like for the Olympics or the Soccer World Cup. Once you have earned the respect and confidence of the international stock exchange community you are in contention. “

I personally regard this as a great opportunity to showcase both the JSE and our country. It is something the JSE has been lobbying for over the past 12 years. Delegates will find an exchange that has been in existence for 123 years and has evolved into a world class entity over the past 15 years . The JSE is Africa’s only multi-product bourse and through our Africa Board our strategic aim is to provide access for investors seeking to tap into Africa’s growing wealth.

Our exchange has well over 40 different product offerings ranging from ordinary shares, single stock futures, bond futures to grain futures and options. We now connect buyers and sellers in six specialised financial markets namely equities, equity derivatives, currency derivatives, interest rate derivatives, commodity derivatives and bonds.

Over the four days delegates will attend six different workshop panels on such topics as Regulatory Winds, Exchange Business Models, Interest Rate Products, Fragmentation, Exchange Mergers & Acquisitions and Innovation in our Businesses.

The panel on Innovation is of particular interest to me as it questions what exchanges are now doing differently than five years ago in terms of products, services and technology. How will the financial market ecosystem evolve and what role will exchanges play in it? In what new ways should exchanges be looking to work with different client constituencies and how are clients looking at working with exchanges?

If the JSE wishes to remain relevant in a highly competitive industry we must remain abreast of technological advances. Speed is becoming increasingly important in the exchange industry as exchanges cope with the rapid rise of high-frequency trading. Therefore over the past ten years we have spent over R2 billion in improving our IT systems. Moreover, early next year the JSE’s equity trading system will be relocated from London to Johannesburg onto a trading platform provided by MillenniumIT. This will not only enhance operational efficiencies but JSE members will be able to execute transactions 400 times faster than is currently possible.

Through conservative budgeting we have already paid for most of the new data centre. This enabled our directors to declare a special dividend of 210c per share after our half-year to the end of June.

Mzansi Accounts
As SA is a developing country suggestions have been made that the JSE should investigate some type of Mzansi -style account with the aim of increasing the number of private investors who invest directly on the JSE. A Mzansi account is an affordable banking facility offered by five South African banks to make banking more accessible to previously unbanked communities.

However it should be borne in mind that investing directly on the JSE is not a bottom of the financial pyramid engagement. My personal philosophy is that private investors should not invest on the JSE unless they can afford a diversified portfolio of five to ten stocks. Because of the risk involved, buying shares should not be as easy as an impulse purchase off the shelves of a supermarket. The JSE is not a casino and too many small investors invest money they can’t afford to lose in a stock on the basis of rumour or whim. I would also emphasise that no one with any kind of debt should consider investing on the JSE.

We must not lose sight of the fact that in South Africa there is compulsory legislation that salaried employees have to invest in retirement funds of some form or another. As most pension and provident funds have at least a portion of their investments in listed equities this means that South Africans from all walks of life have savings invested on the JSE.

For those individuals interested in dipping their toes into the share market for the first time I would highly recommend that they start with collective investment schemes like unit trusts and exchange traded funds (ETF’s). ETF’s are low cost, passive investments that track a given index or asset and are not actively managed like unit trusts.

The first South African ETF was listed on the JSE in November 2000 and there are currently 30 ETFs listed on the JSE by eight different ETF providers. The range includes local equities, international equities, dividend, bond, property, gold bullion and a multi-asset class. Their main benefit is to enable an individual to invest in a wide variety of securities via a single investment product thus reducing the risk of investing in a single company. Investors can also follow the progress of the companies within their fund and thus over time acquire the experience and confidence to invest directly in individual companies.

There are a number of ways to invest in ETFs - through a JSE authorised stockbroker, through a number of internet based websites (etfSA or iTransact) or through an ETF provider’s investment plan. I would recommend an investment plan for those who do not have much disposable income or access to a computer. With this option an investment can be made with the minimum lump sum of R1000 or a minimum monthly debit order of R300. This is also an ideal vehicle for parents or grandparents who wish to put money aside for schooling.

However, once again I would urge caution. Firstly I would advise investment over at least a five to seven year period and secondly enquire about the risk profile of the fund where you are placing your money. If you have an investment horizon of 20 years, go for an ETF tracking indices with a high concentration of shares. If short term volatility worries you look for funds which have a cash and bond portion as these give some protection on downside risk.

A simple call to the JSE (011 520 7000) is all it takes to reach a number of people who will provide help and information on the various ETF’s and how to get started. The JSE website, www.jse.co.za, is also a mine of information.

This article first appeared in Business Report