Leader of the Year : Nicky Newton-King CEO, Johannesburg Stock Exchange

For the fourth year in a row, the Johannesburg Stock Exchange was named the world’s leading securities exchange by the World Economic Forum. The Global Competitiveness Report released in September 2013 ranked South Africa first out of 148 countries for regulation of securities exchanges. The JSE was also recognized as the world’s leader for strength of auditing and reporting standards.

Established in 1887, the JSE is Africa’s largest stock exchange and is one of the top 20 exchanges in the world. In 2011, Nicky Newton-King was named the chief executive officer of the JSE. She became the first woman in the JSE’s history to be appointed to the position. Previously she had been a Partner at a law firm in Johannesburg.

Newton-King was named Business Woman of the Year in 2003; was a Yale World Fellow in 2006 and a World Economic Forum Young Global leader. She had been the Executive Director of the JSE Limited since 2000 and had been its Deputy Chief Executive Officer since 2003.

The African Business Journal had the opportunity to interview Newton-King about her many accomplishments, the possibility of a pan-African exchange and what the JSE’s top rankings by the WEF mean for South Africa’s economy.

For the fourth year in a row, the JSE has been named by the World Economic Forum as the best in the world for regulation of securities exchanges and South Africa is third in the world on financial market development. As CEO, what did the JSE do that allowed it to out-perform other securities exchanges around the world?

We think our leading regulatory competency is one of our competitive advantages. We are the front line regulator of both the companies listed on our exchange as well as the trading activities on our various markets.

South Africa’s regulation is clear and concise and provides certainty in the market for both issuers and investors; this combined with the consistent application of compliance regulation encourages fair and transparent dealing.

For instance, over the last 15 years, listings requirements have changed substantially across the globe. We keep on top of international trends on listings regulation and engage our international exchange peers in the World Federation of Exchanges (WEF) on best practices of things that have worked in their markets and we have adapted these insights for the South African market.

On market regulation, the JSE uses very sophisticated technology in order to monitor trade on our markets. The technology we use to monitor trading patterns is one of the most advanced in the world and enables us to verify every single trade, the clients involved and the orders that lead up to the trade. The ability to immediately identify the clients is unique and this leading technology allows our relatively small team to operate on par with much bigger teams elsewhere in the world.

The WEF ranking is also a testament to the strong relationship the JSE has with our regulator, the Financial Services Board (FSB), whom we engage with continuously.

The ranking of South Africa as third in the world for financial market development is an acknowledgement of our strong financial services sector, backed by a sound regulatory and legal framework, which is both sophisticated and accessible to ordinary South Africans. The country has dozens of domestic and foreign institutions providing a full range of services including commercial, retail and merchant banking, mortgage lending, insurance and investment. In terms of accessibility, South Africa is ranked second in the world for availability of financial services.

What does this accolade mean for South Africa’s economy and for how the country is perceived by the rest of the world?

We think it is important that despite South Africa being an emerging market, we can boast high levels of sophistication and competence in one of the most technically demanding of all global business areas. We should be proud of this recognition as good governance and high regulatory standards are integral to investor perception of - and comfort with - our financial markets. It is important that our financial market remains a centre of excellence and is perceived as such.

Where does the JSE stand with its move to T+3? Why is the change important and when do you forecast it to be completed?

Although we currently settle on T+5, we have had zero failed trades at T+5 and this adds significantly to investor confidence. That said the world standard is at T+3 so it is important that we move to T+3 and it is one of our top priorities. We are making good progress and have already successfully completed the first of three phases of the project. Timelines for the completion of the other two phases will be communicated to the market shortly.

Will derivatives and special vehicles such as SPACs and REITs be important to growth in the future?

New product development is a key to the JSE’s growth. Though the equity market and related post trade services are still the JSE’s biggest revenue generators, trading activity from new products and other markets is growing. Growth of the derivatives markets is affected by product innovation and operational improvements. We’re always looking for new products that solve a market need such as the launch of on-market CFDs in 2013. We also constantly work to develop our derivatives markets (commodities, currencies, equity and interest rate). For example, we plan to move our equity derivatives market to the same trading engine as our equity market which we expect to have a very positive impact on volumes in the derivatives market.

Having said this, product development on the equity market is still taking place apace. A regulatory change in April 2013 which saw South Africa adopting the globally understood Real Estate Investment Trust (REIT) structure further positioned the exchange as a venue for property listings. With this change being lauded as a positive move by local and international investors, we are likely to see more listings in this sector.

Another welcome development for our investors was the change in our listing requirements this past April which now allows special purpose acquisition companies (SPACs) or cash shells to list on the exchange. This change opens up a new channel for primary capital raising for fledgling investment companies and could spur new listings activity, both for SPACs listings and - over the long term - should SPAC portfolio investments be successful, they could be listed separately.

It’s been said that Africa is the final frontier for business. Many multi-national brands are quickly expanding across the continent. What do you owe that momentum to and has it had any impact on the JSE?

The International Monetary Fund (IMF) estimates that Sub-Saharan Africa – showing variable growth in some countries - is now the second fastest–growing region in the world, trailing only emerging Asia, with Africa as a whole showing up as a favourable investment destination. It is appropriate to make use of this increased interest to make investment in Africa more ‘mainstream’ rather than a temporary alternative, with the aim of attracting longer-term and more consistent investment flows.

Global investors also continue to seek exposure to the growing African middle class. This has increased foreign interest in South African listed companies already operating in the rest of the continent.

This trend also creates opportunities for the dual listing of multinationals, with the recent secondary listing of Glencore Xstrata providing an excellent example.

South Africa has a great opportunity to use its developed financial markets to provide multinationals with a base from which they can expand onto the rest of the continent.

Investors considering putting funds into a new investment destination also want hygiene factors such as stock exchanges with regulatory and operational standards which meet investor standards. In each context, exchanges must have predictable sets of rules, fair operating schemes and reliable and efficient operating systems. If any of these factors aren’t present, another investment destination may be found.

Are there still plans to create a pan-African exchange?

There are already 26 equity exchanges in Africa which are members of African Stock Exchanges Association (ASEA) and we meet frequently to build closer ties between the African exchanges.

Although it would be very beneficial for investors and issuers if there were a pan African exchange, given that there are already so many different exchanges on the Continent, we think the likelihood of a pan-African exchange is some way off.

One concept we favour is that of dual listings, wherein debt or equity is listed simultaneously on the JSE and on a local market. This will assist companies from other African countries to gain access to a much larger capital pool and trade in a more liquid environment, but still allows local market participation. It also attracts more international investors to exchanges on the rest of the continent. Dual issuance in conjunction with domestic financial market practitioners will allow a flow of skills across markets. The better developed Africa’s financial markets are, the more attractive they will be to investors. We seek dual listings particularly in quasi-equity instruments such as depository receipts and exchange traded funds.

How many African countries are listed on the exchange and how do you stay competitive in attracting companies to list on your exchange?

There are currently 12 African companies from outside of South Africa listed on the JSE. The Republic of Namibia also listed its first Rand-denominated government bond on the JSE in late 2012. The first tranche was an issuance of R850 million, but a R3 billion medium term note programme has been approved. The JSE also offers an exchange traded note (ETN) that tracks the ‘MSCI EFM AFRICA TOP 50 CAPPED TRN INDEX’. This is a free float-adjusted market capitalisation weighted index reflecting the performance of large and mid-capitalisation companies in Africa.

We are also working to attract more dual listings, especially from promising African companies. Listing standards, fees, regulatory environment, quality of institutional investors and participation of foreign investors are just a few of the factors that companies must consider carefully when selecting a listing destination. We strive to provide the best environment possible in all these aspects. The high participation of foreign investors South Arica already attract means we can offer companies access to a very deep pool of international capital.

What role is the JSE playing in helping Africa to raise funding for infrastructure?

Typically African countries have not turned to debt markets to raise funding for infrastructure. However it is possible that more countries in Africa will start to access debt markets in order to finance infrastructural needs.

Some countries have gone to the dollar and euro markets. However, it makes sense to raise debt in Africa for Africa and the JSE can help to channel the necessary funds to rest of the continent. Like with equity, we favour dual listings for debt and the JSE wants to help in the development of capital markets in the rest of Africa. For the continent to ensure that its markets are as attractive as possible for investors and market, development is an important part of this. If we make it difficult for foreign investors to invest, they will go elsewhere.

You’ve been at the JSE for almost 20 years now, looking back, what are some of your biggest accomplishments and some of your proudest moments? Is there anything you would like to achieve professionally that you haven’t yet done?

I attribute the accomplishments that the JSE has made over the past years to good team work.

There are too many to give a comprehensive list (see sidebar on the previous page). There is still much more to accomplish and we’re working towards a five-year strategy to ensure that the JSE is positioned to play its part in a thriving South African financial ecosystem. At a high level, this means becoming more agile and more responsive to clients and the changing environment, delivering on timely and quality IT projects, ensuring our products and services are consistent with what our clients need and want, maintaining the hard-won reputation for appropriate regulation, and engaging on the key regulatory issues that face our industry. It is within this context that the JSE is focused on resilience and sustainability.

We believe that delivery on this strategy will give results in a business that is agile, innovative, cost effective and capital efficient.