Business

JSE considers major changes for listed companies after a year of scandal

Staff Writer

 ·19 Sep 2018

The Johannesburg Stock Exchange has published a regulatory review consultation paper, highlighting several considerations it is undertaking to strengthen the regulatory environment around listed companies.

This follows a year of several major business scandals – most notably Steinhoff – where trades and practices (and failure to disclose financial operations) by listed companies has brought into question the effectiveness of the JSE’s current policies.

“The South African financial markets have, over the past year, been shaken by a range of corporate scandals, rumours and innuendo,” the group said.

“As one might expect, these have led to questions about how certain alleged activities were able to happen (apparently undetected), whether regulators such as the JSE could have taken action to prevent certain activities and whether those events have highlighted any regulatory provisions that might need to change.”

For the JSE, the events of the past year have highlighted the need for it to review its responsibilities and that certain aspects of the manner in which it regulates both primary and secondary listings could be strengthened, it said.

The document acts as a discussion point from which the JSE will engage with stakeholders, with the response being taken into consideration for changes, if any, the group will implement going forward.

Among the changes being discussed, are factors around initial listing criteria, public holdings of companies, market notices and legal compliance. The JSE is also looking at mandatory training for audit committees and company secretaries.

Here are the main changes under consideration for listed companies:

Subscribed capital

• Current listing requirements need a prospective company to have subscribed capital of R50 million (with profit of R15 million) or subscribed capital of R500 million if the profit criterion is not met. The JSE is considering revising these values upwards as they are out of date (established in 2007).
• The JSE is also considering making it a requirement that the minimum prescribed capital be in place before any capital raised through a listing on the JSE.

Public spread

• The JSE requires that 20% of each class of equity securities be held by the public to ensure reasonable liquidity – currently, direct associates of directors (spouse and minor children) do not qualify for public spread. The JSE is considering extending this to any person/s closely affiliated to directors and management.
• The intention would be to also further exclude shares issued to employees and shares held in lock-ups from the public spread.
• Boards would have to give detailed reporting, with supporting documents, to confirm compliance.

Market notice for listing

• Current requirements say issuers must publish a pre-listing statement and announce its five days before the date of listing. This gives the market time to process the necessary information. The JSE is considering extending this to 10 days.

Compliance with laws

• The JSE is considering a requirement that makes it mandatory for companies to disclose, in a pre-listing statement, the relevant laws that apply to its establishment and main industry of operation.
• The companies would then have to issue a statement on how they are complying with those laws, and the steps and measures taken to do so.

Audit committees and Company secretaries

• The JSE is considering making it mandatory that members of audit committees as well as company secretaries undergo formal training prior to listing, and on a continual basis should there be material amendments to the listing requirements.

Dealings in securities

• The JSE said it is of the view that directors should disclose more in their dealings of securities, particularly where shares held by directors have been used as collateral/guarantees as security for financial commitments. The consideration is that these need to be part of annual reporting.
• The JSE is also considering expanding dealings in securities provisions to include senior management (not just directors).

According to the JSE, these are all discussion points, and it will engage stakeholders on the matter over the next few weeks. It has opened its doors to public comment on the document, which is embedded in full below.

JSE Regulatory Review Consultation Paper FINAL_19 September by BusinessTech on Scribd

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