To enhance transparency, competitiveness, fairness and efficiency, the Johannesburg Stock Exchange proposes to introduce a market segmentation model for the JSE Main Board. This would create two segments: Main Board Prime and Main Board General. The Main Board General segment would offer several less onerous listing obligations for companies listed in this segment.
The JSE currently operates a two-tiered market for equities, catering to companies at different stages of growth. The JSE Main Board serves as the primary platform for well established companies seeking to raise equity funding to grow their business exponentially. The AltX, on the other hand, functions as an alternative exchange specifically designed for smaller companies with high-growth potential, seeking access to a larger investor pool and growth opportunities.
The proposal to segment the Main Board into Main Board Prime and Main Board General follows the (i) publication of a consultation paper in May 2022 in which the JSE requested input from stakeholders on, among other things, a market segmentation proposal; and (ii) market research conducted in June 2023 on segmentation of the Main Board. This proposed segmentation aims to tailor regulation more effectively based on the size and liquidity of Main Board listed companies, while maintaining continued investor confidence in disclosure and the standing of existing Main Board listed companies. Notably, primary listed companies in the General segment will benefit from a less onerous application of certain provisions of the JSE Listings Requirements.
The proposed market segmentation framework
Classification of a company within the Prime segment or General segment will be linked to inclusion in/exclusion from the FTSE/All Share Index. The JSE chose this index because it is a well-known and established market index and provides for a more stable segmentation threshold than market capitalisation alone.
Market segmentation will exclusively be available to companies with primary listings on the JSE Main Board. Initially, all companies with a listing on the Main Board will be classified within the Prime segment. An existing listed company may apply for a listing on the General segment and the JSE must approve the application, provided that it is not included in the FTSE/JSE All Share Index. A company listed in the General segment will be reclassified into the Prime segment if it is included in the FTSE/JSE All Share Index for 12 months, subject to a six-month notice period. A company may apply for reclassification into the General segment if it falls outside the index for at least 12 months. Additionally, a company listed in the General segment may apply for reclassification into the Prime segment at any time.
Companies seeking a new listing on the JSE Main Board may apply for classification within the General segment and the JSE will, in its discretion and in consultation with the JSE Indices Department, determine the likelihood of the applicant being included in the FTSE/JSE All Share Index in the near future. This determination will be based on various factors (including expected market capitalisation, free float and the FTSE/JSE All Share Index exclusion rules).
Less onerous application of certain listing requirements for the General segment
Subject to a company's memorandum of incorporation and the Companies Act, 2008, the following proposed reforms will apply to companies listed on the General segment:
- the obligation to announce results dealing with condensed financial statements or annual financial statements/summary financial statements does not apply, and will be limited to the release of the annual report within four months after financial year-end;
- removal of fairness opinions for a specific issue of shares for cash, general authority (issue of options/convertibles), specific repurchase of securities, related party transactions and small related party transactions, provided the related party corporate action agreement is open for inspection and the corporate action is accompanied by a statement by the independent board members dealing with: (i) the corporate governance processes that were followed to approve the corporate action; (ii) confirmation that related parties and their associates were excluded from voting (if applicable); and (iii) whether the corporate action was at arms' length and fair to shareholders;
- a general authority to issue shares for cash does not require shareholder approval, provided it does not exceed 10% of the listed company's issued share capital, as at the date of each annual general meeting;
- shareholder approval in terms of paragraph 5.69(b) is not required for a specific authority to repurchase securities from parties other than related parties, provided it does not exceed 20% of the listed company's share capital in any one financial year;
- shareholder approval in terms of paragraph 5.72(c) is not required for a general authority to repurchase securities;
- a pre-listing statement is only triggered for share issuances exceeding 100% (currently 50%) over a three-month period;
- only one year audited historical financial information (which includes comparative results) is required for the subject of a Category 1 transaction (currently three years of audited historical information is required);
- the preparation of pro forma financial information is not required but rather a detailed narrative must be provided on the impact of the transaction/corporate action on the financial statements;
- in respect of paragraphs 9.20 and 9.21, shareholders' approval and a circular are not required for transactions by a subsidiary that is listed on the JSE;
- the Category 1 percentage ratio is 50% or more (currently 30%);
- the material shareholder definition percentage ratio is 20% (currently 10%);
- the small-related party transaction percentage ratio is less than or equal to 10%, but exceeds 3% (currently 5% and 0.25%); and
- in relation to a new listing, an applicant listed company is not required to comply with paragraph 8.2(f), requiring historical financial information of any Category 1 acquisition or disposal effected in the current or preceding financial year.
The JSE has reiterated that the introduction of the market segmentation framework will not alter the Main Board entry criteria or any of the mandatory corporate governance provisions prescribed in Section 3 (Continuing Obligations) of the JSE Listings Requirements.
Secondary listed companies excluded from market segmentation
The market segmentation proposals are not available to secondary listed companies, presumably as the JSE allows secondary listed companies with primary listings on an approved exchange (which includes, among others, the Australian Stock Exchange, London Stock Exchange, New York Stock Exchange, Toronto Stock Exchange, Nasdaq and Singapore Stock Exchange) to comply only with the requirements of the primary exchange, except for a few exceptions.
Comparable market segmentation frameworks
The JSE's proposed segmentation is comparable to the London Stock Exchange's (LSE) Premium Listing and Standard Listing segments. Similar to the JSE's General segment, the LSE Standard Listing allows companies access to the LSE Main Market by only meeting the harmonised European Union standards, rather than the more fulsome regulatory requirements of the UK's Financial Conduct Authority (FCA) applicable to a Premium Listing. The FCA is currently reviewing the LSE market segmentation model, among other LSE listing regime reforms.
The Tokyo Stock Exchange also has a comparable structure. Its Prime Market, like the JSE's Prime segment, caters to companies which have appropriate liquidity to be investment instruments for institutional investors (and therefore required to comply with higher standards of corporate governance). Its Standard Market aligns with the JSE's General segment, serving companies with sufficient liquidity to attract general investors (and therefore required to comply with a basic level of corporate governance). Its Growth Market, similar to the JSE's AltX, is available to companies that are in a developmental phase and pose a fairly high investment risk.
Next steps
The market segmentation proposals are open for comment until 20 May 2024. Although the market has indicated its broad support, the JSE is likely to receive robust public comment from market players on whether the proposals meet the current needs of the market.
The market segmentation proposals are part of broader JSE initiatives (such as the JSE Simplification Project and ongoing reforms to cut red tape) to reform its listings framework to ensure the bourse remains competitive, fair and efficient, and to set effective and appropriate levels of regulation.
Copies of the Market Segmentation Explanatory Memorandum and Amendment Schedule can be accessed by clicking on the following links: Explanatory Memorandum and Amendment Schedule.
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