As the JSE’s CEO bows out, it’s clear that some investors feel they haven’t had a fair shake
Nicky Newton-King, the formidable CEO of the country’s largest stock exchange, surprised many last week when she said she would retire in September after eight years in charge. Speaking to the FM, Newton-King says she’s been at the JSE for 23 years — and that’s enough. "I’ve had a ball, all the way from demutualising and listing the JSE, buying the SA Futures Exchange and Bond Exchange, and leading their tech investment. But it’s good governance for CEOs to say there comes a time for an organisation to be led by new energy," she says.
Since she began running the show, the JSE’s share price has risen 70% — marginally better than the rest of the market. Nku Nyembezi, the JSE’s chair, said she leaves the JSE "stronger, more diverse, more technologically advanced, commercially savvy and client-focused".
But not everyone believes the JSE has done its job fairly. Critics argue that the JSE’s focus prioritised pleasing its "clients" (the companies which issue shares), rather than the wider pool of "investors".
Andrew Canter, the CEO of Futuregrowth, believes that after the JSE bought the SA Bond Exchange in 2009, it conspicuously failed to make it a fairer exchange.
"There was a real hope that the JSE would improve the governance and standards of the bond market, but this didn’t happen. I feel the JSE has, on this point, failed to play its oversight role effectively," he says.
Many people don’t know this, but the bond market, valued at R2.96-trillion, exceeds the size of the JSE’s equity market. The SA government, the country’s banks and state-owned companies mainly use this platform to borrow money by issuing bonds that are then bought by your pension funds.
But Canter is unequivocal: "The JSE has presided over the wholesale degradation of governance standards in SA, and it’s time for them to reflect on their failure and redefine their role."
Two years ago, Futuregrowth announced it wasn’t going to invest in state-owned enterprises (SOEs) with questionable governance.Since Newton-King began running the show, the JSE’s share price has risen 70%
"What Futuregrowth learnt from engaging with SOEs is that almost all the information we wanted from them from a governance point of view, was not required under the JSE’s vetting standards. This is totally unacceptable," he says.
In particular, says Canter, bond investors need information on the lines of: what is the company’s policy for politically exposed people? What is its whistleblower policy? Who, in the case of Eskom for example, sits on its procurement committee?
And, Canter says, investors need to ensure the prospectuses (known as the Domestic Medium Term Note) allow investors to call meetings, and give them the ability to jointly appoint lawyers. "When a company with listed bonds gets into trouble, the rules are so bad that we as investors can do almost nothing," he says.
But John Burke, the JSE’s head of issuer regulation, won’t agree that the exchange has been sitting on its hands. "We are redoing the listing requirements for the debt listings. We’re also worried about the transparency in the requirements — but that’s why we’re changing them," he says.
On the SOEs, Burke says that the "governance requirements are being changed — radically".
But Canter says it’s a little late. "The way I see it, that’s because the JSE has defined its role as attracting issuers to the exchange, not to protect investors."
Burke says it’s taken so long because of vast disagreements between the various interest groups. "As the JSE, we’ve gone out of our way to listen to everyone. We’ve had two years of consultations on this, and I’ve heard these arguments over and over," he says. The final rules should be published by the end of the year.
On the equity market, at least, the JSE seems to be more reactive.
It’s clear, from what Canter says and criticism last year from Sygnia CEO Magda Wierzycka about the poor quality of listings, that the JSE, as a quasi-regulator, should be held to a higher standard.
Last year, Newton-King thought hard about what the rash of scandals — from Steinhoff, to EOH, to Tongaat — said about SA’s governance culture. The JSE published a "consultation paper" in which it spoke of putting in place a better governance system, consisting of ramped-up listings rules. Sadly, some of those proposals — like forcing a company to put its governance to a vote at its AGM — have been jettisoned.
But, says Newton-King, "the bulk of the things we had jurisdiction over, we pulled through into the new listing rules".
It’s hard to dispute that Newton-King, who speaks eloquently about the exchange’s wider social role beyond just maximising profit for shareholders, has dragged the JSE into the new technological era.
She speaks a lot about trust, and how it’s crucial to reinstil trust in the market, partly so that foreign investors will favour SA over countries like Brazil, Russia and Kazakhstan. But it’s clear the JSE needs to do more to ensure investors who use its platforms also feel they’re getting a fair shake.
As for what she’ll do now, Newton-King says she plans to take a whole year off. "I’ll spend time with my family, do some extreme cycling and take time to think of how I can make a difference. I hope there’ll be another opportunity for me to do something that moves the needle," she says.