Chapter 2: The JSE Securities Exchange SA

Question 1

Main function of the JSE

Answer 1

To attract new capital.

To create an orderly market where present owners of financial instruments, especially shares, can trade these.

Question 2

Primary market

Answer 2

The activities where new capital is created. Where financing is obtained.

Question 3

Secondary market

Answer 3

Trading between shareholders and potential shareholders.

Question 4

4 Important requirements for a continuous market

Answer 4

• Information on companies, their achievements and any other aspects that could influence the value of their shares, must be quickly and freely available.
• Information on the markets must be quickly and freely available. All market participants should be able to determine the direction of price movements.
• There must be a large number of potential buyers and sellers for each share - creating an active market.
• Transaction costs must be very low, no having a substantial influence on the buyer/seller’s decision.

Question 5

External sources of control of the JSE

Answer 5

• The Stock Exchanges Control Act, making provision for the creation and operation of stock exchanges.
• The JSE must annually apply to the Minister of Finance for an operating license.

Question 6

Composition of the JSE board of directors:

Answer 6

• A Chief Executive Officer appointed by the non-executive directors
• Not less than 2 executive directors, appointed from the executive staff of the JSE by the CEO.
• Not less than 6 non-executive directors. Of which at least 3 must be from the stockbroking community and at least 3 must be from outside the stockbroking community.

Question 7

Sponsoring broker

Answer 7

A broker acting as a link between the JSE and the company, specialising in new listings.
He helps ensure that the application will comply with all the requirements.

Question 8

Most important requirements for listing on the Main board

Answer 8

• R25 million in share capital
• 25 million shares
• 3+ years satisfactory profit history
• At least R8 million profit before tax, last audited
• 20% of each class of equity to be held by the public
• Minimum of 500 public shareholders

Question 9

Most important requirements for listing on AltX

Answer 9

• R2 million in share capital
• 10% of each class of equity is to be held by the public
• Minimum of 100 ordinary shareholders
• Must appoint a designated advisor
• Directors must complete the “Directors Introduction Programme” (DIP)

Question 10

Provisions of the articles and memorandum of association of a company to be listed

Answer 10

• Shares must be freely transferable to any person
• The company must have at least 4 directors
• At least one third of the directors must retire on an annual basis, but will be eligible for re-election
• The amount that the directors may borrow from the company must be limited.
• The audited financial statements must be provided to shareholders at least 21 days before the annual general meeting on which it will be approved.

Question 11

Advantages of listing for a company

Answer 11

• Status and prestige: having complied with the listing requirements.
• Publicity. Share prices of listed companies are broadcast.
• Additional equity and debt capital can be attracted easily and cheaply.
• Planned mergers and take-overs can be achieved more easily
• Hostile take-overs can be prevented more easily.

Question 12

Advantages of listing for the shareholders

Answer 12

• More tradable shares
• Listed shares are accepted more easily as guarantee for short term loans
• Market price of listed shares are normally higher
• Valuation of listed shares (estate valuation) are much easier
• Easier portfolio management as continuous comparison of the investment with market movements is possible.