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JSE freezes plan to launch technology board

Samuel Mungadze
By Samuel Mungadze, Africa editor
Johannesburg, 31 Aug 2022

The Johannesburg Stock Exchange (JSE) has shelved plans to launch a technology board, despite overwhelming support from institutional investors, audit firms and listing sponsors.

The local bourse was aiming to lure more tech companies and start-ups, including fintech firms, to list on the local bourse, which would have allowed them to raise capital.

The JSE has released the JSE Listings Review response paper, in which the exchange says the majority of commentators − including institutional investors, audit firms, listing sponsors, issuers and regulatory bodies − are in support of the bourse establishing a technology board.

This follows public consultations conducted by the stock exchange earlier this year, with the aim of obtaining public input on various proposals regarding its listings framework, considering recent international developments and JSE initiatives.

The JSE says its consultation paper also served as an innovation platform to promote capital market activity and competitiveness, and was subject to public comments from 12 May to 20 June.

During the consultation process, the JSE posed the question: Is there investment appetite for a technology board on the exchange, with more regulation flexibilities in order to promote growth?

Whopping support

In response, 66% of commentators were in support of the JSE considering the proposal to introduce a technology board.

“The bourse is very pleased with the level of views, opinions and comments received through this inclusive and transparent approach, to advance the relevance and attractiveness of South African financial markets. Commentators comprised a diverse group of private individuals, institutional investors, audit firms, listing sponsors, issuers and regulatory bodies,” says the JSE.

In the plan, the JSE intended to mirror the Chinese Shanghai’s Nasdaq-style tech board, which is largely seen as a government-backed move to become self-sufficient in core technologies, such as chips, IT and biotech.

According to the exchange: “The STAR Market (Shanghai Stock Exchange Science and Technology Innovation Board) is one of China’s boldest moves at reforming its capital markets to make it easier for tech start-ups to raise funds at home and ensure the next Alibaba or Baidu do not flock to exchanges in the US or elsewhere.

“It is also a part of Beijing’s desire to become technologically self-reliant at a time when Chinese tech firms such as Huawei have been targeted by the US, allegedly to extract trade concessions.”

The bourse notes that often companies in the technology sector are considered to be high-growth companies and as a result, it sought to establish a technology board with clearly identified regulatory flexibilities to guarantee that it caters to their unique nature.

Relevant considerations

Notwithstanding the overwhelming support to launch the technology board, the JSE says the plan has been put on hold.

“Although there is general support for this proposal, it is recognised that there are synergies with the market segmentation proposal, whereby more flexibilities are aimed to be afforded to small and mid-cap companies. It may therefore be more prudent for the JSE to focus its immediate efforts on the market segmentation proposal and revisit the proposal on the technology board at a later stage.”

Explaining the move, the exchange says notable comments were made to the JSE that were not favourable to the proposal.

It says concerns raised varied but include that: “It is doubted that such a board would be a success absent a significant increase in retail participation on the JSE, or without tax or other incentives.

“Start-up companies are necessarily small in the beginning, and most funds under management in SA are managed by large institutions with no interest in anything small.”

It says the other concern is that: “The market would be better served if the JSE were to apply its mind to initiatives to increase the attractiveness of listings of South African and other African companies on the JSE.

“Instead of considering a technology board, the JSE could, as regards other African companies, for example, consider establishing an African board.”

According to the JSE, there is also “doubt if there is sufficient interest (from both investors and issuers) for a tiered structure, especially one so sector-specific.

“Does SA really have a flourishing tech sector, outside of the listed space? It does not seem that way. Maybe a general approach to pool liquidity/interest in one strong market is better than fragmentation/segmentation.”

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