JSE puts on an unedifying display

The JSE’s apparent double standard in its dealings with potential competitors is puzzling. It paints the bourse as a bully that responds only to the force of the regulator.

The JSE initially launched two separate appeals against the exchange licences granted in August 2016 to 4 Africa Exchange (4AX) and ZAR X. It then backtracked, announcing in December that it would cooperate with 4AX to “promote broader financial markets”.

Commenting on the change of heart, JSE head of capital markets Donna Nemer said that at the time 4AX’s licence was granted, the JSE felt the “exchange application process did not provide [it] with sufficient insight” to determine whether the objectives of the Financial Markets Act would be furthered by the granting of the licence. “However, after active and transparent engagements … we have a better understanding of 4AX’s market approach, which will increase the diversity of financial markets in SA. This is what led us to withdraw our appeal.” Her response is strange. ZAR X CEO Etienne Nel said that it had indeed tried to engage with the JSE around its concerns.

According to Nemer, the two engaged “in the initial stages”, but ZAR X “didn’t give us the information at the time we asked for it. Then there was no further engagement until the eve of the appeal.”

The registrar of securities services at the Financial Services Board also denied the JSE sight of the whole of ZAR X’s licence application. The JSE appealed against this — as part of its overall appeal against ZAR X’s licence — but the Financial Services Board’s appeal board found that the JSE had no legal right to the information.

In any event, “the irony of the submission” is that the JSE did eventually have sight of the full application for purposes of the appeal, but none of its eventual grounds were based on anything contained in the undisclosed part of the application, said deputy chair of the appeal board Judge LTC Harms.

If it had all the information it needed, was the JSE’s primary concern that granting ZAR X a licence would hamper the objectives of the Financial Markets Act? (This appears to be why it appealed against 4AX’s licence.)

The act seeks to ensure that financial markets promote investor protection and are fair, efficient and competitive.

Furthering the act did not appear to concern the JSE. In fact, Harms said the JSE did not engage with the reasons given by the registrar for granting ZAR X’s licence, including reasons as to why it would further the objectives of the act.

So what were the reasons for the JSE’s appeal?

Nemer told Business Day that the JSE had concerns regarding ZAR X’s financial resources, its ability to survey its members and the fact that it could waive compliance with its own rules.

But Harms found that these concerns were based on little to no evidence and ignored the registrar’s assessment. Puzzling indeed. While the JSE understandably wants to uphold the high standards of excellence associated with SA’s capital markets, it must do that with the same honesty, transparency and integrity that it expects from other players.