Component 2 (JSE) Flashcards
What was the initial purpose of the JSE?
It was founded to attract capital for the developing mining sector.
What are the two main functions of the JSE?
Primary market and secondary market.
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How does the primary market function with capital?
In the primary market, large amounts of risk-averse capital are converted into risk capital.
Who determines the price of new financial instruments in the primary market?
The issuer of the financial instrument determines the price at which the shares will be sold.
What is the goal when a company presents shares in the primary market?
To present shares at a reasonable price to attract the required capital.
What is the secondary market?
The secondary market is where present owners of financial instruments, such as shares, can trade them with potential shareholders.
What determines the price of shares in the secondary market?
The forces of supply and demand determine the share price in the secondary market.
What are the key requirements for maintaining an active secondary market?
- info on companies must be quickly and freely available
- info on markets must be freely available
- large number of potential buyers and sellers for each share
- low transaction costs
What act governs the operation of the JSE? (external sources)
The Financial Markets Act (2012)
Who must the JSE apply to annually for an operating license? (external sources)
The Minister of Finance.
Who supervises the running of the JSE? (external sources)
The Financial Sector Conduct Authority (FSCA).
What entity provides prudential regulation for the JSE? (external sources)
The Prudential Authority, a division of the South African Reserve Bank.
How is the internal control of the JSE structured?
It is managed by a board of directors elected by shareholders at the annual general meeting.
What is the minimum number of directors required on the JSE board? (internal sources)
No less than 6 directors, with a majority being non-executive directors.
What is required annually regarding non-executive directors on the JSE board? (internal sources)
At least one-third of non-executive directors must retire on a rotation basis but are eligible for re-election.
What corporate governance practices does the JSE board follow? (internal sources)
The King IV Report’s guidelines, requiring independent non-executive directors with diverse backgrounds.
What is the role of the Chairman of the JSE board? (internal sources)
The Chairman is an independent non-executive director and ensures impartial leadership of the board.
Who are the two mandatory executive directors on the JSE board? (internal sources)
The Group CEO and the CFO.
Who was the first CEO of the JSE?
Mr. Tony Norton (1987).
Name the CEO of the JSE who was appointed in 2019. (executive directors)
Dr. Leila Fourie.
What are some key responsibilities overseen by the JSE board committees?
- Finance and audit governance
- Regulatory oversight
- Remuneration governance
- Risk, technology, and information governance
- Sustainability and ethics governance
- Board renewal and governance
- Oversight of acquisitions and growth opportunities
What must a company do to have its shares traded on the JSE?
Apply for a listing and comply with JSE prerequisites.
Who should a company appoint when applying for a JSE listing?
A sponsor for a Main Board listing or a designated advisor for an AltX listing.
What role does the advisor play in the JSE listing process?
Acts as a link between the JSE and the company, ensuring compliance with all listing requirements.
Which division of the JSE handles listing applications
The JSE Issuer Regulation division.
What happens after the JSE Issuer Regulation division approves a listing application?
The division makes a recommendation to the JSE board, which makes the final decision on the listing.
What are the required subscribed (issued) capital amounts for Main Board and AltX listings
Main Board: R50 million, AltX: R2 million.
What is the minimum public holding requirement for equity shares on the Main Board and AltX?
Main Board: 20%, AltX: 10%
What is the profit history requirement for a Main Board listing?
A satisfactory audited profit history for the preceding 3 financial years.
What is required for a company to list on AltX if it doesn’t meet the audited profit requirement?
It must have subscribed capital of at least R500 million before listing.
How many directors must a listed company have according to JSE requirements?
At least 4 directors.
How often must one-third of the company’s directors retire, and are they eligible for re-election
One-third must retire annually, but they are eligible for re-election
How long before the AGM must audited annual financial statements be provided to shareholders?
At least 21 days before the annual general meeting.
According to JSE rules, when must interim results be available?
Within three months from the end of the half-year.
What information must a company provide in its pre-listing statement?
Complete information on the company and its activities.
Advantages if listing for the company?
- provide status & prestige
- ensures national & international publicity
- attract additional debt capital easily & cheaply
- planned mergers & take-overs can be achieved more easily
- hostile take-over can be more easily prevented
advantages of listing for shareholders?
listed shares:
= much more tradable than unlisted shares
= more easily accepted as guarantee for short term loans
- market prices higher than unlisted shares
- valuation easier
- portfolio management easier
members of JSE?
- before 1996 restructuring, membership limited to natural persons (stockbrokers)
- after 1996 restructuring membership allocated to institutions/ enterprises
What are the three membership types for an Equity Market member of the JSE?
Trading Service Provider (TSP)
Custody Service Provider (CSP)
Investment Service Provider (ISP)
What is a Trading Service Provider (TSP) on the JSE?
A TSP is authorized to perform trading services on behalf of their clients or for their own account.
What is a Custody Service Provider (CSP) on the JSE?
A CSP is authorized to perform custody services on behalf of their clients or other members and their clients.
What is an Investment Service Provider (ISP) on the JSE?
An ISP can perform investment services only if they have applied to perform trading services.
Who is allowed to buy and sell shares on behalf of clients on the JSE?
Only members of the JSE may buy and sell shares on behalf of clients, and stockbrokers can only operate in the name of the member.
What is a key requirement for a JSE member to maintain membership?
A member must be incorporated and registered as a domestic company under the Companies Act.
What requirements must directors of a JSE member company meet?
Directors must comply with the fit and proper requirements of the rules and directives of the JSE.
What officers must a JSE member appoint to ensure compliance and settlement?
- A compliance officer to ensure compliance with the Act and JSE rules.
- A settlement officer to ensure all transactions are settled properly.
What must an equity market member appoint, unless it only performs custody services?
Central Securities Depository Participant (CSDP).
What officers must a Debt and Derivatives market member appoint on the JSE?
A money laundering compliance officer.
A minimum of two traders.
A clearing member for the respective markets.
What is the base capital requirement for JSE membership?
The higher of:
Adequate capital to cover 13 weeks of operating expenditure.
and
R400,000.
What additional risk requirements must a JSE member meet
The sum of its position risk requirement, counterparty risk requirement, foreign exchange requirement, and large exposures requirement.
What dual trading capacity are JSE members permitted to trade in since 1996?
JSE members can act as:
- An agent for the client (earning commission) or,
- A principal, buying/selling their own shares (without charging brokerage).
What must a JSE member inform their client about before acting on their behalf?
The member must inform the client whether they are acting as an agent or as a principal, otherwise assumed agent
Who regulates stockbrokers on the JSE?
Stockbrokers are regulated by the JSE and the FSCA (Financial Sector Conduct Authority).
How do clients buy and sell shares on the JSE?
Clients must use a stockbroking firm, which is a member of the JSE, to buy or sell shares.
What are the two types of stockbrokers on the JSE?
- Execute-only stockbrokers (who only execute transactions).
- Advisory stockbrokers (who provide advice and manage portfolios).
What are the educational prerequisites for stockbrokers on the JSE?
- A relevant bachelor’s degree, preferably in finance.
- Passing the Registered Persons Examination (RPE) from the South African Institute of Stockbrokers (SAIS).
What regulatory requirements must stockbrokers meet on the JSE?
- They must be registered members of the South African Institute of Stockbrokers (SAIS).
- They must pass other regulatory exams as required by the FSCA and the JSE.
- They must be licensed by the FSCA to practice legally.
What are the additional prerequisites for stockbrokers on the JSE?
- They may not have been expelled from any financial market worldwide.
- They must pay the entrance and annual membership fees.
What is a controlled broker client account?
In a controlled account, the stockbroker has control over and access to the client’s funds and shares, which are placed in the JSE trust fund.
What is a non-controlled broker client account?
In a non-controlled account, the client’s funds are in their own bank account, and the client appoints their own CSDP (Central Securities Depository Participant) for shares custody.
What happens to shares that a client gives to a broker in a controlled account?
The shares are dematerialized, and the electronic record is safely kept by the broker’s CSDP (Central Securities Depository Participant).
What must a non-controlled client notify their broker about when selling or purchasing shares?
The client must notify the broker about their appointed CSDP for share custody.
