Stockbroking has failed to transform
• Black firms receive only a minuscule proportion of the work given out by large asset houses, summit is told
Transformation of the highly concentrated stockbroking sector is proceeding at a snail’s pace, with black stockbrokers involved in less than 2% of the value traded on the JSE.
Transformation of the highly concentrated stockbroking sector is proceeding at a snail’s pace, with black stockbrokers involved in less than 2% of the value traded on the Johannesburg Securities Exchange.
With 80% of the brokerage on the exchange being handled by only 10 of the 55 members of the JSE, little of the cake remains to be shared among the rest.
These facts emerged from the summit on transformation in the stockbroking industry organised on Thursday by the Association of Black Securities and Investment Professionals (Absip). The failure of asset institutions to use black stockbrokers was a dominant theme.
The JSE’s head of equity and equity derivatives, Valdene Reddy, noted that the fall of about 15% over the year in trading volumes created a difficult context within which to drive transformation. The JSE had taken steps to reduce trading fees for qualifying firms whose margins were under pressure.
The CEO of Lefika Securities and a member of the Black Brokers Forum, Vusimuzi Mkhondo, noted that of the 553 practising stockbrokers, only 20 were black. He urged asset managers to commit to meaningful allocations to black firms and adopt a minimum threshold. Leading stockbrokers should partner with black broking firms and pass on expertise, he said.
Absip president Sibongiseni Mbatha said black stockbroking firms received only a small proportion of the work allocated by large asset houses. The lack of transformation among decisionmakers in large asset houses prevented any meaningful allocation to black broking firms.
“Black brokerages face unyielding “school-tie connections” by the gatekeepers at institutional asset houses who allocate on a preferential basis to firms where they have past connections, he said.
“Institutional support for black brokers is intermittent, short term and inconsistent, making it difficult for these firms to plan with any predictability.
“The current status of transformation in the industry is not ideal,” Mbatha added, as there was no legislative support for transformation of the sector. Black brokers were given low quality, illiquid and small trades to execute. As price takers, they were pressured by larger institutions to transact at unviable rates and fees.
The Public Investment Corporation’s (PIC’s) GM for listed equities, Lebogang Molebatsi, reported that by 2016, 64% of the PIC’s brokerage went to 51% black-owned firms. But the pie had got smaller and there were more participants now.