The new Johannesburg Stock Exchange building in the heart of Sandton

THE Johannesburg Securities Exchange (JSE) is the 16th largest in the world, and by far the largest of Africa's 22 stock exchanges. Market capitalisation at the end of December 2003 stood at R4 029-billion, up from R1 160-billion five years earlier. The JSE describes itself as the "engine room" of the South African economy, providing an orderly market for dealing in securities. Its main function is to facilitate the raising of primary capital by re-channelling cash resources into productive economic activity, and building the economy while enhancing job opportunities and wealth creation. The JSE also provides an effective price determination facility and price risk management mechanism.

The JSE is privately owned and funded, and governed by a Board of Directors. Its activities are licensed and regulated by two Acts of Parliament, namely the Stock Exchanges Control Act, 1 of 1985 ("SECA"), which governs the equities markets, and the Financial Markets Control Act, 55 of 1989 ("FMCA"), which governs the derivatives markets.

In keeping with international practice, the JSE also acts as regulator of its members and ensures that markets operate in a transparent manner, ensuring investor protection. Similarly, issuers of securities must comply with the JSE Listings Requirements, which aim to ensure sufficient disclosure of all information relevant to investors.

The JSE's roles include regulating applications for listing, and ensuring that listed companies continue to meet their obligations. The JSE monitors applications for alterations to existing listings, and scrutinises company disclosures to the public. The JSE also provides a Stock Exchange News Service (SENS) through which company news, including price-sensitive information, is distributed to the market.

The JSE has been bold in restructuring in the light of increasingly tough global competition, adopting new technologies and outsourcing aspects of its business. The key challenges the JSE faced were:

The worldwide consolidation of markets and infrastructure meant that emerging markets were finding it more and more difficult to stay relevant.

The ageing JSE trading technology outgrew its capacity, unable to cope with the increased number of deals that needed to be processed each day.

A number of South Africa's biggest listed companies moved their primary listings to London in the late nineties to be more attractive to international investors. This loss caused concern in the South African market and resulted in decreased trade on the JSE.
The first major change occurred in November 1995, when the Stock Exchanges Control Act changed the way in which stocks were traded in South Africa, opening the doors to non-South Africans, and allowing brokers to buy and sell stock for their own account (where previously they could only act as agents for their clients)

• New capital adequacy requirements, based on European Union requirements, require the separation of clients' funds from those of brokers.
• The traditional open outcry market - in which traders jostled for deals on a noisy trading floor - has now disappeared, replaced by a less colourful, but faster, computer-driven trading system (the Johannesburg equities trading (JET) screen-based system)
• The JSE has been opened to corporate membership, resulting in a stampede by foreign banks, who have bought out most of the major local broking firms, using these as platforms for other financial services, such as corporate and government advisory work.
• A Stock Exchange News Service (SENS) was launched in 1997, offering real time prices. Listed companies are expected to disseminate any corporate news or price-sensitive information on the service prior to using any other media outlet. SENS aims to ensure early, equal and wide dissemination of any information that may have an effect on prices, and improves communication between listed companies and the investing community.
• The classification of listed companies was simplified in mid-1999, combining sectors that were considered to be subject to similar economic and political pressures.
• The introduction of an electronic settlement system (STRATE - Share Transactions Totally Electronic) to replace the previous manual settlement of scrip.
• Change of name to JSE Securities Exchange South Africa.
• The introduction of an alternative exchange called ALTX, to entice black-owned businesses to go public.

In 1999, the JSE hired the financial consulting firm Accenture, which had assisted with the implementation of the electronic settlement system, STRATE, to broker a strategic relationship between the JSE and the London Stock Exchange (LSE).

The JSE's trading and information systems were replaced with the LSE's Sequence and LMIL systems, branded JSE SETS and InfoWiz respectively. The trading engine and information dissemination feed-handler is hosted in London and connected remotely to the JSE. The connection takes place over a 9 000km transcontinental undersea cable and an innovative, integrated solutions design. More than 1 500 traders and information users access the system via a sophisticated Application Service Provider with sub-second response time.

The JSE also aligned their equities trading model with that of Europe, and reclassified their instruments in line with the FTSE Global Classification system. This has led to the introduction of the FTSE/JSE Africa Index Series that makes the South African Indices comparable to similar indices worldwide.

Implementation was completed in June 2002, and opened by South African President Thabo Mbeki and British Deputy Prime Minister John Prescott, who described the deal as an historic partnership. The investment community is now served by one of the most reliable trading platforms worldwide. Trade information of instruments listed on the JSE can now be disseminated by the LSE to more than 104 000 trading terminals around the world, raising the profile of the JSE among the international investor community.