Bitter turn in JSE’s cold war
Recent criticism of regulators shouldn’t lead to exchanges being given blanket discretion to prevent new listings, JSE says
The cold war between Magda Wierzycka and the JSE has intensified, with the Sygnia CEO accusing the exchange of either "not understanding its obligations" or, worse, misleading the public.
Last month, Wierzycka tackled JSE CEO Nicky Newton-King at the exchange’s AGM over issues such as the listing of Ayo Technology and the Guptas’ Oakbay Resources and the aborted listing of Sagarmatha.
Wierzycka was irked particularly since the JSE had, in recent weeks, scotched her bid to list an exchange traded fund based on the bitcoin cryptocurrency, ostensibly because this would have compromised the JSE’s ability to protect investors.
"Why is the JSE willing to allow listings ... where [public servants] and other retail investors have been exposed to an asset of highly questionable quality at a vastly inflated valuation?" she asked at the AGM. The JSE’s response was that it has no discretion to veto listings, if a company meets its requirements.
However, Wierzycka has now sent a harshly worded letter to the JSE saying that she has since checked, and the JSE’s own listing rules "clearly state that the JSE has an obligation to protect investors [and] that the JSE must be satisfied that it is appropriate for securities to be listed".
She says this is deeply problematic in light of the JSE’s statements at the AGM that it cannot veto listings if all the requirements are met.
"It now turns out that these assertions were incorrect and that the duty to protect investors is not limited in any way," she says.
"A kind interpretation of the events would be that the JSE’s executive management team does not understand its obligations under the law. A more cynical interpretation would be that the same executive management team deliberately misled the board of directors, shareholders, investors and the general public," she writes.
Though Wierzycka sent that letter to JSE chair Nonkululeko Nyembezi on June 5, she only got a response this week, in which the exchange dismissed her concerns.
In her response, Nyembezi says the board "fundamentally disagrees with your interpretation of both the facts and the law". As a result, Nyembezi says: "I do not believe any purpose can be served by continuing our correspondence."
This week, Wierzycka told the FM that her motivation was primarily to clean up poor governance at the JSE.
Contacted by the FM this week, Newton-King said: "We’ve heard Magda’s view — and she’s wrong. We do have a duty to protect investors, but within the context of the law. Magda asked us at the AGM: do you protect investors, and we said, yes we do — by ensuring satisfactory disclosures are out there, so investors can make up their own minds."
Newton-King says that’s how every exchange in the world operates — even if Wierzycka doesn’t like it.
"No exchange has unfettered discretion to reject listings," she says. "I’m a board member of the World Federation of Exchanges, and my peers on that board have the same view of how to protect investors — ensure proper disclosure, ensure the listings requirements are pitched properly and enforce them fairly."
However, the issue of whether the JSE’s rules are robust enough to prevent shady companies from listing has been thrown into sharp relief in recent months. The implosion of Oakbay, the collapse of Steinhoff and claims of undetected rampant share manipulation at Resilient have led to much criticism of the regulators.
Newton-King says these events shake the public’s trust, which leads to a heightened expectation that regulators, like the JSE, must do something to hold someone accountable.
"But what this ‘something’ should be is hard to answer. The JSE is reviewing the lessons from the past nine months to see whether there are clear paths of action for it. It is not clear that more rules would stop potential misconduct," she says.
So the JSE is considering whether to provide more guidance on conduct to what it terms the "guardians of governance", who include directors, auditors and big shareholders. It is also looking at whether it can provide more public information on the progress of probes into market misconduct "so that stakeholders know that the wheels of justice are turning".
"But what we mustn’t do, which Wierzycka seems to want, is just give blanket discretion to the JSE to decide not to list someone if we don’t like them," says Newton-King.
Cannon Asset Managers CEO Adrian Saville says it’s a slippery slope for a regulator to take a more interventionist role.
"In one breath, you want to make sure that what you list should be investable with proper assets. But if a company meets those criteria, you can’t put yourself in the position of being an adjudicator of how good the company is," he says.
Saville asks whether the JSE should have pre-emptively vetoed the tech stocks of the early 2000s, or the junior mining companies of the mid-2000s, or allowed investors to decide for themselves.
"Unfortunately, many of these things only become clear in retrospect," he says.