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JSE-LSE Business Association: Embracing Global Trends and Challenges

This article explores the business association between the JSE Securities Exchange South Africa and London Stock Exchange, discussing global trends, JSE's reality and strategic position, and the JSE-LSE deal.

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JSE-LSE Business Association: Embracing Global Trends and Challenges

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  1. NEW BUSINESS ASSOCIATIONbetween theJSE Securities Exchange South AfricaandLondon Stock Exchange

  2. Discussion items • Global trends and challenges • JSE reality, vision and strategic position • JSE/LSE relationship

  3. Global Trends and Challenges • Technological innovation allows for a greater degree of automation, reduction in transaction costs and increase in processing efficiency • Alliances and partnerships facilitate economies of scale and provide for a single point of access to larger pools of liquidity • Demutualisation will result in exchanges no longer being owned by their members and allows them to run as independent organisations • Deregulation enables a greater degree of cross-border trade and investment The JSE investigated global trends in financial markets to gain insight into its future direction. There are a few key characteristics that are shaping the future:

  4. What is the JSE Reality ? The JSE is aware of the changes it needs to make. 1. The JSE cannot maintain the status quo. 2. The JSE must offer SA companies more than what is currently offered. 3. The JSE must replace JET. 4. The JSE is looking for a broader business relationship. 5. The JSE needs to offer a new information dissemination system. 6. The JSE needs to ensure operational excellence to compete.

  5. JSE Vision • “To be recognised for • providing world-class primary markets, • secondary markets and services • facilitated by strategic affiliations • while providing a gateway • integrating Southern Africa into • the global financial markets”

  6. JSE Strategic Options into the Global Market • Aligning with internationally accepted practices • Providing gateway for SA listed corporates to global markets • Utilising proven technologies without reinventing established practices and technologies • Positioning the JSE within it’s geographical area to successfully challenge competitive markets • Enabling the trade in a wider product range thereby creating economies of scale • Creating cost competitive structures, processes and infrastructure An affiliation with a global stock exchange with proven technology would create the opportunity for the JSE to achieve the following objectives:

  7. JSE/LSE Deal • The JSE/LSE deal consists of a number of key areas. Technology Listings Membership Information Dissemination

  8. JSE/LSE Deal - Technology The LSE is to provide the JSE with a set of core technology services delivered through the LSE’s Sequence system • Trading platform run remotely from UK • Communication link between JSE technology hub in SA and LSE core technology hub in London • LSE will provide the JSE with a customised, complete and fully functional trading and information dissemination solution which will enable the trade in all counters

  9. JSE/LSE Deal - Listings To ensure the JSE is attractive as a gateway to international capital for large SA companies Create an international board with listings requirements acceptable to the LSE and UKLA Companies on the international board will be dual primary listed on both the LSE and the JSE JSE will manage the entire listings relationship for companies on the international board - creates an easier route for dual listings with the LSE, which is a potential growth area for new listings Prevents further large companies moving their primary listings away from the JSE

  10. JSE/LSE Deal - Membership A number of core principles of participation by LSE members trading on the JSE and JSE members trading on the LSE are being negotiated (remote participation) • Members of the JSE authorised as remote SETS participants will be entitled to trade on SETS in addition to any trading entitlement that they have on the JSE by virtue of membership of the JSE • Members of the LSE authorised as remote JSE participants will be entitled to trade on the JSE in addition to any trading entitlement that they have on the LSE by virtue of membership of the LSE • Only JSE and LSE members who comply with criteria determined by the LSE and JSE will be accepted as remote participants

  11. What are the implications regarding Membership and Listings ? LSE JSE Exchanges Listing Dual Primary Listed JSE Primary and Other Secondary Listings Segment 1: SETS 184 Board Segment 2: UK International Board Segment 4: International JSE Board Segment 5: Local JSE Board 1 Segment 6: Local JSE Board 2 Segment 7: Local JSE Board 3 Segment 3: International UK JSE Board Segment 8: NSX Board Segments Order-driven OA, CA ~ 184 UK Stocks (GBx) Order-driven OA, CA ~ 40 – 60 SA Stocks (GBx) Order-driven OA, CA ~ 40 – 60 SA Stocks Order-driven OA, CA Other Liquid SA Stocks Order-driven OA, IA, CA Illiquid SA Stocks Quote-driven MM Possible Illiquid Stocks Order-driven OA, CT, IA . . . CT, CA NSX Stocks Order-driven OA, CA ~ 184 UK Stocks Segment Charac-teristics (ZAc) (ZAc) (ZAc) (ZAc) (ZAc) (ZAc) Local LSE Participants Int. LSE Participants Segment Partici-pants Int. JSE Participants Local JSE Participants KEY: OA – Opening Auction CA – Closing Auction IA - Intraday Auction MM – Market Makers Int. - International

  12. JSE/LSE Deal - Information Dissemination The LSE and the JSE will market each other’s share price information thereby providing greater access to such information • JSE information will be disseminated on the same technology platform as the LSE • JSE will market LSE information in Africa subject to LSE contract • LSE will market JSE information in rest of world subject to JSE contract

  13. Key Issues • Indices • Exchange controls • Regulatory buy-in / support • Market participation and support

  14. StrategicBenefits • The LSE strategic option provides a world-class trading platform used by the world’s third-largest market place. • Benefits for the JSE • Access to global markets • World class trading solution • Joint development of new products and dual listing and/or trading thereof • Access to increased pool of liquidity • Enhanced image and brand of JSE • Knowledge sharing • Realisable • Strategic Benefits • Natural strategic partner • European accessibility • Listings reciprocity • Improved liquidity • Cross-membership • Improved integrity • Central Counter Party • Joint marketing • STRATE/Crest association Value to JSE • Benefits for the LSE • Global business relationship outside of Europe • Commercial gain • Improved shareholder return • Enhanced executive leadership reputation • Proof of technology and implementation • Knowledge sharing Technology Functionality LSE Strategic Affiliation

  15. Questions

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