Latest amendments to the JSE Listing Requirements: A fine balancing act between reducing regulatory complexity and protecting against market abuse?
On 4 May 2022, the Johannesburg Stock Exchange (“JSE“) announced that the Financial Sector Conduct Authority (“FSCA“) had approved amendments to the JSE listings requirements (“Listings Requirements“) aimed at reducing red tape and creating an enabling environment for companies listed on the JSE.
The amendments, which come into effect on 1 June 2022, are a culmination of a comprehensive consultation process with market participants and the FSCA and are aimed at achieving a level of effective and appropriate regulation for companies listed on the JSE’s Main Board and Alternative Exchange.
In amending the Listings Requirements, the JSE recognises that the global regulatory landscape continues to evolve and the importance of engaging market participants so as to ensure that a balance is struck between the regulatory responsibilities of the JSE and obligations placed on listed companies by the JSE to comply with ongoing regulatory requirements.
The amendments to the Listings Requirements have been introduced at a time when a growing number of issuers are delisting from the JSE (20 in 2020 and 25 in 2021) with few new listings to make up for the decline and the emergence of new local bourses, arguably with less stringent issuer regulation, providing alternative listing platforms for issuers in South Africa.
In this competitive environment, the JSE also needs to strike a balance between creating an enabling regulatory environment for issuers and protecting against market abuse and manipulation and the threatened erosion of corporate governance principles.
Some of the key amendments that come into effect on 1 June 2022 include the following:
- increasing the exemption threshold for ordinary course of business transactions from a percentage ratio (consideration to market capitalization or dilution) of 10% to 30% in the context of transactions that do not need to be categorized for the purposes of complying with the Listings Requirements (and that would otherwise require shareholder approval and the publication of a circular to shareholders);
- excluding any transactions with directors and/or their associates from the ordinary course of business exemption referred to above;
- providing for additional circumstances where intra-group repurchase transactions do not require shareholder approval, namely intra-group repurchases by the issuer of its securities from wholly-owned subsidiaries or in the context of share incentive schemes and/or non-dilutive share incentive schemes controlled by the issuer, in each case, on a non pro-rata basis;
- allowing related parties to participate in a general issue of shares for cash through a bookbuild process subject to certain conditions including, inter alia, maximum pricing requirements and that all allocations in the bookbuild process take place on an equitable basis;
- in the case of a circular to shareholders where the circular includes management accounts used for the purposes of the pro forma financial effects, a reporting accountant’s review or audit opinion (whichever is applicable) must be obtained on those management accounts for acquisitions only and not for disposals;
- for purposes of a reverse take-over categorisation, a change in the board of directors of an unlisted company to be acquired has been clarified to mean a change of 35% or more of the composition of the board of directors of such company (where previously no such percentage was specified in the context of board composition);
- directors, prescribed officers and/or company secretaries are allowed to participate in a rights offer during a closed period through exercising undertakings or elections to take up entitlements under a rights offer, including excess applications and taking up securities under a rights offer; and
- clarifying the circumstances that require the appointment of an independent sponsor (issuers will not be required to have an independent sponsor at all times, but rather in specific instances).
The JSE is of the view that above amendments will create an appropriate level of regulation that will ensure a fair, efficient, and transparent financial market. Whilst these amendments may be welcomed by market participants, whether they will achieve the end goal of making the listing environment more attractive to both local and foreign issuers and investors remains to be seen.