Creating a flexible and enabling environment for listed companies to raise capital and undertake corporate actions within an appropriate regulatory framework is of crucial importance to the JSE. Hence the exchange’s driving of a Market Segmentation project, which was approved by the Financial Sector Conduct Authority in late August. It came into effect in September.

‘The Market Segmentation project repositions the JSE’s Main Board into two segments, the Prime and the General segments,’ says Andre Visser, Director: Issuer Regulation at the JSE. ‘This new structure aims to offer an effective and appropriate level of regulation tailored to the size and liquidity of issuers on the Main Board, while continuing to uphold investor confidence in the market.’

Visser says it is important to emphasise that the segmentation of the Main Board was the JSE’s response to what was happening in the local market, to tackle specific challenges. He says the primary motivation behind the project was to address the regulatory burden of some of the smaller companies listed on the Main Board of the JSE. ‘This is the segment where we have seen most of our delistings. The proposed segmentation of the Main Board will provide an effective and appropriate level of regulation depending on the size, free float and liquidity of Main Board primary issuers, while also maintaining investor confidence in disclosure and the status of existing listed Main Board companies.

‘The segmentation of the Main Board will maintain and in some cases increase transparency and disclosure, and therefore ensure that investors, both local and international, have sufficient information to make informed investment decisions. It will also provide directors with greater flexibility to focus on running the business in the best interests of the company in a regulatory environment that is fit for purpose. This will assist in maintaining listings on the JSE and attract new listings – and, therefore, provide local and foreign investors with more choice on the JSE.’

There will be key differences between the Prime Segment and the General Segment in terms of listing requirements and regulations.

‘A critical point is that the entry criteria for new listings and corporate governance standards on the General Segment will remain identical to that of the Prime Segment, and therefore ensure that integrity and quality of the Main Board is protected,’ says Visser. ‘Companies that get access to the General Segment will then have a regulatory framework that is more fit for purpose for those sized companies. This will ultimately ease the regulatory burden while providing investors with sufficient information to make informed investment decisions. There are several benefits for smaller companies including cost savings, a far more flexible capital raising and transaction regime, and more efficient and cost-effective financial reporting.’

Visser says the segmentation project will not affect the AltX. ‘AltX will remain a market for small companies that don’t meet the more stringent entry criteria for the Main Board.’

There has been positive feedback from issuers and market participants since the introduction of the segmentation project, he says. ‘The JSE consulted extensively with stakeholders prior to segmenting the Main Board. The JSE also appointed an external service provider to conduct a survey among issuers, sponsors and investors to get correct feedback and data to ensure that the positioning was appropriate.

‘There has been a great deal of interest, and we already approved seven applications from issuers to move to the General Segment. The process will take time as many companies would want to consult with their boards and in some cases with their shareholder base.’

By Patrick Farrell
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