Public Investment in South Africa
South African Public Investment Financial Infrastructure
South Africa is one of the world's favorite emerging markets, offering investors sophisticated financial infrastructures and exceptional investment opportunities. The South African Reserve Bank (SARB) oversees the banking services industry in South Africa. The non-banking financial services industry is governed by the Financial Service Board (FSB). South Africa has the following principle financial service markets:
The JSE is governed and licensed externally by the Stock Exchange Control Act of 1985. The Safex and BESA markets are governed by the Financial Marketers Control Act of 1989. The markets are self-regulated internally. For more information, please visit http://www.southafrica.info/business/investing/
JSE - JSE Securities Exchange South Africa
There are various types of shares and investment products to suit different individual needs, for example conservative or “safe” shares versus riskier shares.
A list of basic share investment products is included below:
Investors gain ownership in a company when buying shares, which entitles them to vote in proportion to percentage ownership. Shareholders are entitled to dividends (after preference shares dividends and bondholders’ interest is paid) as well as residual economic value should the company unwind (after bondholders and preference shareholders are paid).
Ordinary shareholders have the right to vote at Annual General Meetings
Ordinary shareholders have the ability to elect the Board of Directors of a company
Ordinary shareholders’ dividends can be higher than preference shareholders’ dividends as dividends for ordinary shares are not fixed.
B- Ordinary shares are subject to the Articles of Association of the company concerned. Holders of B-Ordinary shares have fewer or no voting rights and may not have a right to any repayment of capital when a company is wound up. Dividends for B-Ordinary shareholders are not fixed and can be higher than dividends for preference shareholders.
N-Ordinary shares are the same as ordinary shares except that they give shareholders minimal or zero voting rights. N-Ordinary shares often trade at a discount to ordinary shares. Although they are likely to cost less they pay out the same dividends as ordinary shares.
N-Ordinary shares receive the same dividends as ordinary shares
Dividends for N-Ordinary shareholders are not fixed and can be higher than dividends for preference shareholders
Preference shares are instruments that have debt (fixed dividends) and equity (capital appreciation) characteristics. Preference shareholders have a higher claim on assets (repayment of capital if company is wound up) and earnings (dividends) than ordinary shareholders. Preference shareholders are paid fixed-rate dividends before dividends are paid to ordinary shareholders.
Repayments of capital if company is wound up after (after payment of debt holders)
Higher level of income for preference shareholders than debt holders because of the higher risk involved
Preference shareholders have a better guarantee for dividend payout than ordinary shareholders because dividend payments are usually fixed
Exchange Traded Funds
Preference shareholders are guaranteed of specified percentage dividends if the company makes a profit
Exchange Traded Funds (ETFs) are listed investment products that track the performance of a basket of shares, bonds or commodities. These “baskets” are known as indices, for example the FTSE/JSE Top 40 Index. An ETF can be bought and sold just like an ordinary share.
Single Stock Futures
A futures contract is a legally binding agreement that gives the investor the right to buy or sell an underlying financial instrument (if physically settled) at a fixed price on a future date.
Single Stock Futures (SSFs) are futures contracts on individually listed shares. They are standardized contracts with set specifications regarding size, expiry dates and tick movement.
The JSE offers four expiration dates for contracts: the third Thursday of March, June, September and December respectively.
A futures contract is a legally binding agreement that gives the investor the right to buy or sell an underlying currency at a fixed price on a future date.
A Currency Futures contract allows market participants to trade the underlying exchange rate for a period in the future. Participants can buy or sell foreign currency at a set exchange rate on a future date.
Currency Futures are contracts that allow participants to take a view on the movement of the exchange rate as well as hedge against currency risk.
The JSE offers four expiration dates for contracts: Two business days prior to the third Wednesday of each expiry month: March, June, September and December respectively.
An option is a derivative instrument that gives the investor the right (not the obligation) to buy (call option) or sell (put option) shares at a fixed price on a future date. Options provide a cost-effective way of obtaining a large amount of exposure with very little risk.
Safex - South African Futures Exchange
Commodity Derivatives Market
The Commodity Derivatives Market provides a platform for price discovery and efficient price risk management for the grains market in South and Southern Africa. More recently, the Division also offers derivatives on precious metals and crude oil.
Commodity markets have existed for many centuries and were the first to innovate contracts in which to manage price risk. The use of derivative instruments through futures and options contracts, provide market participants with the ability to manage their price risk in the underlying physical market. By trading on a formal exchange which connects buyers and sellers, not only is price discovery achieved in a transparent fashion, but all transactions are guaranteed through the derivatives clearing structure.
Producers and users of agricultural commodities who hedge their price risk are thereby limiting their exposure to adverse price movements. This encourages increased productivity in the agricultural sector as farmers and users are able to concentrate their efforts on managing production risks. Production risks associated with variables such as the weather, farm/production management and seasonal conditions.
The physically settled commodities rely on warehouse receipts to facilitate the delivery process. The warehouse receipts are utilized by financial institutions who offer financing to clients who own the receipts. Derivative contracts also enable institutions to fund input costs to producers who hedge their price risk and in so doing encourage sustainable production.
The cash settled commodities, like gold and crude oil, reference highly liquid international markets for the final cash settlement value thereby providing all participants with the assurance that the local settlement price is not open to any abuse.
Equity Derivatives Market
The Equity Derivatives market provides a platform for trading Futures and/or Options. Futures and Options are derivative instruments which derive their value from an underlying instrument.
On-Exchange trading provide clients with transparency, eliminates counterparty risk, and as the Exchange we are an Independent source for price discovery.
The regular administration of margins prevents participants from accumulating large unpaid losses, which could impact on the financial position of other market users (systemic risk). Such margining systems do not exist in over-the-counter (OTC) markets.
The protection and safeguarding of clients interests are of utmost importance. Regulation, therefore, plays a crucial role in this regard with the Equity Derivatives market being overseen by the Financial Services Board and controlled in terms of the Financial Markets Control Act (1989). Certain regulatory activities include the registration of all members and clients, strict financial requirements for members and regular inspection of members’ records and procedures.
The benefits of trading futures and options are:
Capital efficient way to participate in shares
Incur lower brokerage fees than actually trading in the underlying
Take advantage of price movements in the underlying
To find out more about the exciting opportunities this market offers to both private and professional traders contact the Exchange on 011 520-7085 or 011 520-7098.
BESA - Bond Exchange of South Africa
The Bond Exchange of South Africa Limited (BESA) is a self-regulatory organization, licensed by the Financial Services Board (FSB) as a securities exchange. BESA regulates cash and derivatives markets in fixed-income securities, and provides a range of other services to both the on-exchange and OTC markets.
BESA's core service to the interest-rate market, apart from regulating it, is to list debt instruments and derivatives, as well as to provide electronic trade capture and matching facilities for authorized users. Bond trades are then automatically channeled to Strate Ltd for electronic settlement on a t+3 basis. The Exchange does not offer automated trading in quoted securities, but encourages independent service providers to provide the market with proprietary automated trading systems.
The Stakeholder Forum comprises all BESA stakeholders from an issuer and investor perspective (for example, The South African Reserve Bank or SARB; the regulators; the investment community; and the Debt Issuers' Association or DIA). It aims to ensure that BESA and the market associations fulfill their license obligations and that the market functions effectively in terms of good market practice.
Independent market associations in South Africa
Markets are structured into market associations comprising groups of users of the exchange. These associations contract with BESA for a package of services that meets their specific needs. This means that users of the exchange benefit from the ability to choose how to trade and with whom, as well as how they wish to influence and develop the market.
Bond Traders' Association (BTA)
Bond traders in South Africa have formed the Bond Traders' Association (BTA). This market association of traders represents the interests of the trading community. The BTA has its own rules, which are compliant with the core rules of BESA.
Derivatives Traders' Association (DTA)
The launch of derivatives trading at BESA necessitated the formation of the Derivatives Traders' Association (DTA) in 2006. This market association was formed to represent the views and interest of the user firms registered to trade BESA-listed derivative instruments. At the end of 2006, 12 users were registered as DTA members. The DTA has its own rules, which are consistent with the core rules of BESA.
Debt Issuers' Association
The Debt Issuers' Association was founded in 2004 to direct and drive change within the South African debt markets. It has a broad agenda, dealing with both operational and strategic issues including legislation and regulation, transparency and liquidity, and benchmarking and settlement.
The Financial Services Board (FSB)
As the overall regulator of the financial services sector in South Africa, the FSB sets the regulatory framework, as well as minimum standards and practices for market participants.
Altx - Alternative Exchange
AltX, the alternative exchange, is a division of the JSE Limited (JSE) is an exciting parallel market focused on good quality small and medium sized high growth companies.
AltX is designed to appeal to a diverse range of companies in all sectors. AltX plays a vital role within the JSE, by providing smaller companies not yet able to list on the JSE Main Board with a clear growth path and access to capital. To be eligible for listing, a company must appoint and retain the services of a registered Designated Advisor - a similar role to the current JSE Sponsor but with different responsibilities.
AltX in collaboration with the Wits Business School (WBS) and the Institute of Directors (IoD) provide the Directors Induction Program (DIP). DIP is a compulsory education program for all executive and non-executive directors of AltX companies.
As a company, you can list on AltX to issue new shares, raise funds, widen your investor base and have your shares traded on a regulated market.
As an investor on the lookout for exciting and fresh opportunities, AltX will expand your investment horisons with companies that need to comply with the rules and regulations of the JSE and participate in high standards of corporate governance.
This is your chance to invest in South Africa's future corporate giants. Explore your options and alter your expectations with AltX.