Proving that the JSE is committed to running a local market that is world-class yet locally relevant too is the 20-year partnership with FTSE Russell. Mark Randall, JSE Director of Information Services, recalls the game-changing significance that the relationship manifested, in 2002. ‘At the time the suite of JSE Actuaries indices, published in conjunction with the Actuarial Society of South Africa, was not keeping pace with global developments in index methodology or calculation technology, raising questions around reliability, global acceptance and growth opportunities,’ he says.

‘That changed overnight when we partnered with FTSE, which at the time was an emerging global leader in financial indices. Its dedicated tech platform with modern methodology brought about enormous benefits for the local market, including the introduction of free float and recognised sector structure.’

Partnership milestones – from originally launching the FTSE index series to the introduction last year of multi-asset indices, along with fixed-income bonds and equity – have continued to support a healthy capital-market ecosystem, says Randall, as evidenced by the performance of the two main core products in play – the FTSE JSE All Share Index (typically used as a performance benchmark), and the FTSE/JSE Top 40 Index (used for tracking funds and derivatives).

‘However, to meet a range of use cases, we do several variants of these critical indices, such as a SWIX weighting, which is focused on local shareholdings, and a capped version, which reduces concentration risk from single stocks. In fact, we publish over 150 equity indices, ranging from broad market benchmarks, sector indices, sustainability through to factor-based “smart-beta” indices.’

Over time the indices have unlocked multiple benefits – market analytics, and reporting and media, are examples. Another is the allocation of capital into particular stocks in order to track market performance. Yet another is the creation of products to hedge risk or gain synthetic exposure to markets such as derivatives. Then there is the measurement of investment performance, which ultimately drives benchmark usage.

In the latter’s case, and specifically for the local market, SA regulators have recently published a draft standard for benchmark regulation, which, Randall confirms, will help ensure benchmarks are accurate, fair and credible. ‘These benchmarks will therefore be compliant with not just local regulation, but also that which binds global investors.’

Randall also highlights that increasing interest in passive-tracking profits and a steady shift away from traditional broad market indices to more thematic approaches are guiding the FTSE/JSE collaboration to create new indices that are relevant and of interest to investors. One of those is the ESG space, which is continuously evolving, with a range of emerging disclosure and reporting frameworks being rolled out globally.

‘FTSE Russell is well placed to use its best-in-class ESG methodologies and frameworks to create sustainability indices for South African investors,’ according to Randall. ‘The FTSE ESG research team covers 175 JSE-listed companies, with peer-comparable ESG metrics, as well as carbon, climate, transition path and green-revenue data points. The recent LSE acquisition of Refinitiv has brought further opportunities in this space for FTSE/JSE to support specialist index construction.’

The JSE’s index business is strategically positioned to remain local but compliant with global standards and trends.

‘We continue to work hard to ensure that all our index users achieve the value they need, be that performance benchmarks to passive funds, through products that are world-class like those from FTSE, up to date and well governed.’

By Kerry Dimmer
Image: Gallo/Getty Images