When is the JSE going to scream at Survé or Jooste?

Icouldn’t resist writing about the JSE’s consultation paper on the strengthening of its listing requirements. This comes after it was under fire for approving listings such as Oakbay Resources (a Gupta company), the overvalued Ayo Technologies (a Public Investment Corporation-funded IT company linked to Iqbal Survé) and the aborted Sagarmatha Technologies listing (a media company linked to Survé, again to be PIC-funded).

It also comes after a torrid year of corporate scandals, including Steinhoff, Resilient and Fortress, all involved in potential fraud, all included in the JSE’s Top 40 index.

To its credit the JSE agrees it needs to review its responsibilities and calls on other parties, such as directors, auditors, asset managers and lawyers to do the same. That is fair. It’s enough to look at the fees charged by the advisers to the Ayos and Steinhoffs to know that all is not well in the financial services sector. It’s enough to look at the skyline of Sandton to know who is making the money.

This article is too short to provide a full commentary, but let me touch on a key issue. The JSE defines its role as being a platform for listing any security that meets its requirements and claims it doesn’t have discretion over what it lists provided these are met. It acknowledges its role in protecting investors but limits this to simply ensuring that full risk disclosures are made before listing.

The requirements are meagre, boiling down to raising R50m, having three years’ audited financials and an annual profit of R15m. Or, simply raising R500m is enough. Then 20% of the issued shares must be held by the “public”. This has enabled insolvent companies to apply for listing provided R500m is being raised. This is an arbitrary number subject to abuse, as we witnessed with Sagarmatha. The definition of “public” has also never been scrutinised. For Oakbay, one entity constituted the “public”. In the Ayo listing, the PIC was fine.

Any amendments to this framework are long overdue. More importantly though, I would welcome its clear and consistent application. In the spirit of full disclosure, I spent nine months working with senior JSE staff on listing a bitcoin exchange-traded fund (ETF). I know bitcoin is controversial, since it is highly volatile. However, volatility is not an unattractive feature for traders and most investors in cryptocurrencies know the risks. On the positive side, a bitcoin ETF would have been a world first, generated foreign interest in SA and provided a regulated vehicle for investors to invest in and for the SA Revenue Service (Sars) to tax.

After all but the final approvals were granted I was summoned to a JSE executive committee meeting at which the director of issuer regulation confirmed we had met all the listing requirements, just to be overridden by one person who screamed at me for 45 minutes about “the SEC (Securities and Exchange Commission) being the greatest regulator” and “bitcoin whales”. The listing was pulled, with the JSE quoting its obligation to protect investors, a lack of regulatory certainty (despite a definition in the budget and directives on cryptocurrencies issued by both the SA Reserve Bank and Sars), and other wrong suppositions.

By its recent admission, disclosures of risks, rather than its personal views, should have been sufficient. I don’t have a problem with the JSE denying a listing to protect investors. I do have a problem with the fact that neither Survé nor Ajay Gupta was pulled into a meeting and screamed at about ridiculous valuations, the future of media “unicorns”, ripping off the PIC, directors’ forecasts that are unachievable, and investor protection. The JSE has yet to summon Markus Jooste or Des de Beer for a roasting.

My issues with the JSE relate to the lack of consistency in its application. Unless addressed, the consultation paper signed by the director of issuer regulation is worthless.