JSE has the means, so why not protect shareholders?
At the recent JSE Ltd annual general meeting I questioned the exchange’s reasons for approving listings of companies such as the Guptas’ Oakbay Energy and Resources, as well as Ayo Technology and Sagarmatha Technologies.
The listing of Oakbay resulted in more than R250m in losses for the Independent Development Corporation. Ayo Technology’s share price has collapsed since the R4.3bn investment by the Public Investment Corporation despite blatant propping-up of the share price through small daily transactions. (I have seen days when a single share was traded to keep the price above R30.)
The answers I received from the JSE were simple. In terms of its listing requirements it does not have discretion over what it lists provided that the security in question meets listing requirements. It does not have any responsibility to protect investors beyond ensuring that at the point of listing the prelisting statement contains the relevant risk disclosures. It also did not take responsibility for people attaching ridiculous valuations to their listings.
It’s buyer beware when it comes to investing on the JSE. This mantra was repeated by the JSE’s executive team at the AGM and later in newspapers and on radio.
Imagine my surprise when I found the following verbiage in the introduction of the JSE listing requirements under the heading General Principles, which are defined as “principles … which must be observed in all corporate actions and also in all submissions pertaining to securities listed and to be listed:
“(i) To ensure the existence of a market for the raising of primary capital, an efficient mechanism for the trading of securities in the secondary market and to protect investors.
“(ii) To ensure that the securities will be admitted to the listing only if the JSE is satisfied that it is appropriate for those securities to be listed.”
It appears that the JSE does indeed have a duty to protect investors despite its denials and that it also has discretion as to what securities it lists.
I am trying to reconcile what I was told at the AGM with the above. A kind interpretation would be that the executive team simply does not understand its obligations under the JSE’s own governing regulations. A more cynical interpretation would be that the same executive team deliberately misled its board of directors, shareholders, investors and the general public to defend itself against the criticism related to approving the listings of Ayo, Sagarmatha and Oakbay.
Perhaps there is a third explanation. I wrote to the JSE’s board of directors seeking that explanation. To this day I have not received an answer.
At the same AGM I was told the JSE was well aware — because of its very sophisticated price manipulation monitoring software — of the price manipulation in Resilient Group shares ahead of the short positions taken by certain hedge funds in January 2018. The question that needs to be asked is: if it was aware of this manipulation, why did it not warn investors as we now know was its duty?
Why did it refer the case to the Financial Sector Conduct Authority for investigation only in February?
Given some ridiculous trading patterns observable in Ayo Technology’s shares right now, the same question has to be asked. What has the JSE done to warn investors of the ridiculous valuation of the company and the strange daily trading patterns in the share itself?
I wish I was generous enough to give the JSE the benefit of the doubt. Having engaged with it for a period of nine months, my generosity has been exhausted.
I want explanations. I am entitled to those as an investor using its services, as a client and as a shareholder.