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One Securities Exchange for South Africa
By Norman Muller
Head: Capital Markets


n Monday, 27 October 2008, the JSE Ltd (“JSE”) announced its firm intention to make an offer to acquire all the issued ordinary shares of BESA Ltd (“BESA”). The JSE and BESA decided that the most effective way to implement the transaction was by way of a Scheme of Arrangement between the JSE and BESA’s shareholders in terms of Section 311 of the Companies Act No 61 of 1973, which would result in the JSE acquiring the entire share capital of BESA and BESA becoming a wholly-owned subsidiary of the JSE. The JSE’s ultimate objective is to integrate the business of BESA into the business of the JSE, i.e. the take-over of the business, winding-up of BESA, with the latter ceasing to exist as a separate legal entity.

Application by the JSE

Section 57 of the Securities Services Act, 2004 (“SSA”) requires the approval of the Registrar of Securities Services (“the Registrar”) to be sought by any person wishing to acquire more than 15% of the issued shares of an exchange. Furthermore, in terms of section 54 of the SSA, any merger of two or more exchanges or the transfer of assets and liabilities by one exchange to another is also required to be approved by the Registrar. As a result of the interrelation of the two applications, the Registrar decided not to consider each application in isolation but to deal with the two as part of a single process.

Approvals required

The implementation of the Scheme of Arrangement was subject to the fulfilment of the conditions precedent outlined in clause 6 of the Scheme document, i.e.: approval of the Scheme by the majority of the members of BESA; the sanctioning of the Scheme by the High Court of South Africa; the registration of the court order sanctioning the Scheme in terms of the Companies Act; and the securing of the necessary approvals or consents from the Securities Regulatory Panel, the South African Reserve Bank, the South African competition authorities and the Registrar.

After extensive consultation with all stakeholders, the Financial Markets Advisory Board and National Treasury, the FSB approved the transaction on 11 May 2009, subject to the following conditions:

  • the conditions precedent as contained in the Scheme of Arrangement are fulfilled;
  • the approval by the Registrar of the integration plan and the fixed income growth strategy;
  • the JSE trading costs will not be increased for the first two years following the approval of the fixed income growth strategy;
  • the National Treasury shall be guaranteed two seats on the JSE Interest Rate Advisory Committee;
  • the submission of a technology plan for the interest rate market to the National Treasury and the FSB to ensure system reliability;
  • the Bond Market in South Africa will not be negatively impacted upon; and
  • any further requirements or conditions that the Registrar may impose.

Development of a fixed income growth strategy

The JSE must, in close consultation with the FSB and all other stakeholders, formulate a fixed income growth strategy, which strategy will serve as a tool for the implementation of the integration of the two exchanges. For this purpose, the JSE will establish an Interest Rate Advisory Committee, which will be representative of all the relevant stakeholders. It was decided that in view of the National Treasury being an important role player within the bond market, two seats will be reserved for representatives of the National Treasury in the Advisory Committee.

Benefits of the transaction

In processing the applications, due regard was taken, inter alia, of the regulatory implications on the South African capital markets and of the furtherance of the objects of the SSA.

The FSB is of the view that the following are some of the benefits that will be brought about by this transaction, most of which are applicable where BESA is integrated into the JSE: Improved risk-management processes will enhance efficiency in the South African capital markets; an enhanced trading model funded from the existing capital; a strong balance sheet; variety of products allowing greater flexibility to meet customer needs; increased liquidity; the reduction in costs through economies of scale, including lower regulatory costs; more effective supervision by the FSB; the elimination of risk of regulatory arbitrage; defragmentation of the South African capital markets; and enhanced global competitiveness of the South African markets.

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