Innovation and trading boom on Africa’s biggest exchange

Africa’s biggest exchange the JSE Ltd. – the Johannesburg Stock Exchange in South Africa – has seen increased revenues. The SA interest-rate market is set for dynamic new change after the JSE consolidated its merger with the Bond Exchange of South Africa (BESA). The exchange is adding new products, including derivatives, to give investors exposure to leading international shares and commodities.

JSE revenues depend on volumes of equities traded. According to a statement of the interim results to June 2009 (www.jse.co.za) released in August : “The volatile conditions in the first half of 2009, combined with increased foreign investment in South African equities, boosted trading volumes and therefore revenues. However, there was a significant fall in volumes of derivatives contracts traded (off a high base).”

The number of trades in spot equities soared by 31% to 9.96 mln (2008: 7.62 mln). Group revenue climbed 7% to R544.5 million ($72.9 mln) compared to the period to June 2008: R508.8 mln. Fixed costs remained controlled and this boosted profit before net financing income by 9% to R206.1 mln (June 2008: R188.8 mln).

 Key development was the finalization of the merger of BESA under a “Scheme of Arrangement” and on 22 June the bond exchange became a 100%-owned subsidiary of the JSE. BESA’s market operations have been merged with the JSE’s existing Yield-X division to form a new interest-rate division, which runs the combined products. It is also developing a fresh interest-rate strategy for the South African fixed-income market and this will be finalized in consultation with market participants in due course.

BESA’s operating activities and personnel were integrated into the JSE. Former chair Nonkululeko Nyembezi-Heita joined the JSE Board, with Jonathan Berman, also a former non-executive BESA director, as her alternate.  

The JSE added a new International Derivatives Market (IDX) as “an innovative series of derivatives on large foreign companies” which it says are “in response to client demand for rand-denominated exposure to well-known companies listed offshore”. According to JSE Chair Humphrey Borkum, writing recently in Business Report newspaper: “Essentially a market maker bank will buy the foreign share and write the South African investor a single stock future which will then trade on the JSE’s SAFEX trading platform. This enables South African investors, without exchange control restrictions, to trade and gain exposure to internationally listed shares such as BP, Vodafone, Smith Kline, Rio Tinto, Nokia and newcomers Warren Buffet’s Berkshire Hathaway and Bank of America.

There are now 29 of these international companies available on IDX none of which are listed on the JSE. I notice that in the latest Fortune 500 listing of the world’s largest corporations BP is at number four and Berkshire Hathaway at 41.”

In January, the exchange launched the cash-settled Chicago Corn futures contract under licence from the Chicago Board of Trade (CBOT) Group. This month (September 2009) it plans to launch rand-denominated contracts in platinum, gold and oil under licence from CBOT.

The announcement further says the JSE “encouraged institutions to reduce risks by bringing exposure to derivatives on-exchange, using Can-Do instruments”.  It also “bedded down the new derivatives trading and clearing systems implemented late last year” while nearly doubling the number of currency derivatives contracts traded (on the previous period).

In February, the JSE launched its Africa Board, designed to attract dual listings of leading companies listed on African exchanges “as part of the JSE’s strategy to promote the growth of African capital markets’. It listed Trustco Ltd from the Namibian Stock Exchange as its first counter.

Borkum also advised investors that Exchange Traded Funds (ETF’s) are a value for money investment which advisers often do not promote, due to lack of commission. There are 26 ETFs listed including SA equities, international equities, dividend, bond, property, commodity and currency ETF’s  An ETF is an investment product which tracks the performance of a basket, known as an “index” of shares, bonds or commodities but is not actively managed – it just represents the price changes of the index securities.

In the results announcement, Borkum and JSE CEO Russell Loubser state: “The JSE will continue to focus on increasing liquidity and improving market competitiveness. In the equity derivatives market, the exchange will work with clients who previously traded off-exchange but who now want to trade on-exchange to manage risk.

“Moreover, new products planned for the second half in cash and derivatives markets should provide trading volume in the medium term. The JSE remains committed to delivering value to issuers and investors.”

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