The listing of the local exchange will have little affect on shareholders.
On March 8 this year, the New York Stock Exchange (NYSE) became a publicly listed company, bringing down the curtain on its 214-year history as a member-owned institution. This followed a day after its US$9.5 billion (R60 billion) merger with the Archipelago Exchange, which has a cutting-edge electronic trading platform.
With this massive transformation, the renamed NYSE Group is three times the size of its main rival in the United States, the Nasdaq, an alternative market player that is dominated by technology listings and which has been making steady inroads into the market. The American Stock Exchange, also situated in New York, has been relegated to a minor player, trying to carve out a niche in equity options and exchange traded funds.
Despite the consolidation, there are still five regional stock exchanges in Canada and six in the US. These are historical relics that will probably not survive in the increasingly competitive trading environment. The regional stock exchanges in Britain disappeared in the 1960s as trading was consolidated in London.
The NYSE is one of the last major international exchanges to demutualise and convert into a listed company. The primary reason for the change appears to be one of competition, efficiency and technology.
The only South African stock exchange, the JSE, demutualised and became a public limited company on July 1, 2005. The transformation saw the mutual society convert into a company owned by shareholders - shares that are not listed on any exchange, but are traded over the counter. All trades are done on the SETS System and are settled through Strate (Share Transactions Totally Electronic), so no physical share certificates are issued, but any investor can purchase the shares. Now the JSE is planning to list on its own boards on June 5.
There were many reasons for the change, but the biggest catalyst was a change in the tax regime when the National Treasury withdrew the JSE's tax-exempt status. The demutualisation also followed similar moves internationally by many of the great exchanges. The London Stock Exchange was the first to list, followed by the Deutsche Borse in February 2001.
The traditional reasons for companies to list on a stock exchange include: the ability to raise capital for growth and expansion; an accurate and transparent method of price determination; it provides an additional avenue for executive and staff remuneration through the use of share option schemes; to provide efficient methods for mergers and take-over attempts; and, in some cases, to provide an exit vehicle for founders of old family businesses.
Although these reasons do apply, in small measure, to stock exchanges going public, their main reasons appear to be financial and competitive considerations. In the case of the JSE, the overriding consideration was taxation. The JSE's decision to list on June 5 on its own boards marks the logical conclusion to demutualisation. The JSE constitutes one of the smaller listed companies. The curious thing about the listing is that the JSE, through the Securities Services Act, has a limitation that no shareholder may own more than 15 percent of the company. This flies in the face of all the hard work that the listing division has done in eradicating control pyramids and limited voting rights. It will be interesting to see how the JSE deals with this new precedent.
In the short term, the change in status of the JSE is of little consequence to anybody else. It has made it clear that it does not plan to raise capital at this stage. There is an over-the-counter market in place, but the shares trade infrequently and are still primarily owned by the stockbroking community.
The services that it provides continue unchanged, as do its regulatory functions. Initially, the main beneficiaries will be the old shareholders, who have experienced wonderful capital gains, and the staff, who have been issued with options.
Now that the JSE is listing, it will be bought and sold like the shares of any other listed company and will be judged according to its profitability, dividend yield, track record and management prowess.
* David Sylvester is the chairman of the Shareholders' Association, telephone (021) 686 7567.
This article was first published in Personal Finance magazine, 2nd Quarter 2006. See what's in our latest issue