Aim to be integrated market for African securities

We will continue to investigate appropriate alliances with global exchanges, says Russell Loubser, CEO of Johannesburg Stock Exchange (JSE) in an interview with Devangi Gandhi. After inking the Brics exchange alliance, JSE aims to become a fully integrated financial market for African securities. Excerpts:

What are the key challenges global exchanges, especially exchanges of emerging economies are likely to face in the coming years?

Cross-border activity in the exchange sector continues, though without the exuberance of 2008/9. We believe the JSE needs to be linked into the global financial markets so that it can not only continue to attract foreign investment but also provide local clients with the best possible access to foreign investment opportunities. This type of access can be obtained in a number of different ways including product diversification, and the provision of value-added services.

Also important is identifying strategic relationships with leading global exchanges to enable us to deliver on our strategy. The exchange?s agreement with the CME Group is a case in point. A more recent example is the October 2011 announcement of the BRICS exchange alliance. This initiative brings together the BM&FBOVESPA from Brazil, MICEX from Russia (currently merging with RTS Exchange), Hong Kong Exchanges and Clearing Limited (HKEx) as the initial China representative and the JSE and allows global investors the opportunity to gain exposure to leading developing markets. The National Stock Exchange of India and the BSE have signed letters of support and will join the alliance after finalising outstanding requirements.

We will continue to investigate appropriate alliances with global exchanges. On the African continent, the JSE has focused its efforts on dual listing companies from the rest of the continent on the JSE?s Main Board while developing associated products such as African exchange traded funds, African debt and African depository receipts.

What strategy has the JSE adapted to remain viable and emerge as the most successful exchange in the African continent?

The consistent focus is on building a sustainable business model by continuing to grow our product range and trade volumes while keeping a very tight handle on our costs and our fees to clients, despite a fairly fixed cost infrastructure and significant investment in technology. Over the past 15 years, the JSE has moved from a single product equity exchange to a fully horizontally and vertically integrated exchange. We continue to strengthen our presence along all elements of the horizontal and vertical aspects of our business. The JSE aims to be recognised as the leading fully integrated financial market for African securities to enable issuers from the continent (outside of South Africa) to take advantage of increased profile and capital raising opportunities by dual listing on the JSE.

Equities trading constitute the most of JSE’s total revenues (38%). Could you explain the business model for the derivative segment?

From 2002 to present the JSE?s equity derivatives market has focused on expanding the product range to meet market demand. The team continues to bring new products to the market and is negotiating the launch of derivatives on African stocks as a complementary offering to the Africa Board, part of the JSE?s cash equities market.

The team also continues to expand existing product categories. In 2010 the JSE added non-standardised derivatives, called Can-Do?s, which are bespoke products retaining the risk-management advantages of listed derivatives.

What is the response to the relatively newer products offered by JSE in last three to five years?

Trade in international derivatives ? that is, derivatives on companies listed on an offshore stock market ? grew particularly strongly, registering a record in number of contracts traded during June 2010. The average trade size remains large and the market is dominated by professional users. In 2010 and 2011, the JSE added to its range of non-standardised derivatives, called Can-Do?s. This product category declined in terms of value traded in 2009 but rose in terms of number of contracts traded, which allow market participants to take a direct position in the volatility of an instrument.