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South Africa: JSE Listings Requirements – Key changes in the JSE Simplification Project to date

22 March 2024
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Overview

  • The Johannesburg Stock Exchange has announced the third phase of the JSE Simplification Project, which aims to shuffle and simplify the existing Sections of the JSE Listings Requirements.
  • The JSE released its first six simplified Sections for public consultation during 2023. Pursuant to public consultation, the JSE now proposes further amendments to the same six sections.
  • The bulk of the changes involve rearranging, rephrasing and shortening existing provisions.
  • The JSE invites comments by close of business on Monday, 8 April 2024.

The Johannesburg Stock Exchange (JSE) has announced the third phase of the JSE Simplification Project, which aims to shuffle and simplify the existing Sections of the JSE Listings Requirements (Requirements).

The JSE released its first six simplified Sections for public consultation during 2023. Pursuant to public consultation, the JSE now proposes further amendments to the same six sections:

  • Section 1: General Powers of the JSE
  • Section 2: Sponsors
  • Section 4: Corporate Governance (entirely new section)
  • Section 5: Continuing Obligations (previous Section 3)
  • Section 9: Transactions
  • Section 10: Related Party Transactions

The JSE invites comments by close of business on Monday, 8 April 2024.

The bulk of the changes involve rearranging, rephrasing and shortening existing provisions. An overview of key current proposed changes not covered in previous articles, is set out below.

Section 1 (General Powers of the JSE)

In the general principles, the discretion of the JSE may be removed (i.e. the discretion to modify the application of the Requirements, where the JSE considers strict application to be in conflict with the general principles). This is to ensure that the JSE more firmly makes and enforces its listings requirements as required by the Financial Markets Act of 2012 (FMA). However, in certain specific instances of the latest proposals released in March 2024, reference to the JSE’s discretion has been introduced. For example, it has now been stated that the JSE may, in its sole discretion, extend the 60-day period granted for the release of a Category 1 circular and listing particulars in relation to a reverse-takeover announcement.

The approach to suspensions and removals of securities is to be consolidated into one section. The issuer is required to inform the JSE of any trigger events taking place (such as liquidation, business rescue, etc). In addition, both the issuer and sponsor are required to inform the JSE of any events triggering a removal of listing of securities (i.e. non-compliance with the Requirements; where holders of the securities have approved the removal of securities or the redemption of securities.)

Section 2 (Sponsors – proposed to be renamed ‘Sponsors and Designated Advisers’)

The JSE had previously proposed increasing the materiality trigger for whether a sponsor has a significant interest in an issuer from 3% to 10%, which trigger would preclude the sponsor from advising the issuer. However, pursuant to its latest amended proposals, this should remain at 3%.

A new paragraph has been introduced addressing the events that can be approved as a matter of sponsor responsibility without JSE involvement (e.g. informing the directors of the issuer of any amendments to the applicable regulations).

The sponsor will continue to be subject to the jurisdiction of the JSE indefinitely following the resignation, termination or withdrawal of its status as a sponsor, as the JSE believes that a one-year time limit should no longer apply on sponsor responsibilities.

The provisions dealing with shares held by sponsors and DAs are to be harmonised and consolidated in relation to share issuances and lock-up periods. This means stricter applicability for sponsors than what is currently applicable. Trading in the applicant issuer’s securities held by the sponsor on listing must be prohibited until the release of the first annual financial statements of the applicant issuer post listing. The sponsor may trade up to 50% of the securities held in the applicant issuer and the balance after the release of the next annual financial statements. Disclosure of the number of securities, value and terms must be provided in the listing particulars.

Section 4 (Corporate Governance) 

Section 4 has been proposed as an entirely new standalone Section addressing corporate governance. The rationale for the proposed addition is that corporate governance has become significant enough to necessitate having a dedicated Section. The current Section 4 will not be deleted but will become Section 3 and the current Section 3 will become Section 5.

Other areas of the Requirements dealing with corporate governance are proposed to be consolidated into Section 4 (save where the contrary is indicated below) and deleted from their current sections.

Secondary listed companies generally do not need to comply with Section 4, provided that they comply with the primary exchange’s corporate governance requirements and the JSE receives positive confirmation of this. However, where the primary listing is not on an approved or accredited exchange, the JSE must be satisfied with the corporate governance regime of the primary exchange. In each case, an overview of the corporate governance regime must be disclosed in the pre-listing statement.

For a Main Board Listing, not only the directors, but directors and senior management should collectively have the appropriate and expertise for the governance and management of the applicant issuer.

A table has been proposed directing which corporate governance provisions apply to ‘Main Board’ or ‘AltX’ companies and when these provisions apply. These includes listing provisions and ongoing corporate governance provisions.

Specific references to the Companies Act and the King Code have been removed, as they do not add regulatory value. The Companies Act and the King Code must be complied with in any event.

The JSE proposes clarification on the mandatory retirement of non-executive directors and their re-election. The one third of non-executive directors who are retiring must be the longest standing one third non-executive directors. The nomination committee may recommend eligibility, and now, specific reference to the board has also been added so that the board may also make such recommendations.

The JSE proposes setting out that the chairperson of the board may not be an executive director. This supports the recommendation in the King Code that the chairperson should be independent.

The responsibility statement, made by the CEO and financial director, are proposed to be contained in the annual financial statements and not in the annual report.

Section 5 (Continuing Obligations) – previous Section 3:

The scope of the section is proposed to be significantly reduced to deal with core listings requirements being Sections, Schedules and Practice Notes. The scope does not form part of the Requirements.

The Section is proposed to be highly restructured. Corporate governance provisions have been reformed to deal with the applicable corporate governance for both Main Board and Alt X issuers.

A new definition of ‘Prohibited Period’ is proposed to refer to the existing concept of a closed period and any period where price sensitive information exists in relation to the issuer’s securities without reference to the director’s personal knowledge of the circumstances to allow for greater application of prohibited period.

The Schedules are to be moved to the JSE Forms Portal.

The JSE proposes removing its authority to grant dispensation with a Cautionary Announcement requirement where a director believes the disclosure will be prejudicial to the issuer, as the dispensation may be in conflict with the FMA.

With regard to Trading Statements, property entities may elect to adopt distribution per listed security as their relevant measure provided they announce the election in advance of the first period ending; and the trigger for the announcement is where the results for the period to be reported upon next will differ by 15%, (rather than the usually applicable 20% for non-property companies, which should include their payout ratio).

It is proposed that Guidance Letters should be maintained but should not form part of the Requirements.

Listing conditions falling under continuing obligations reflect under a new heading, referring only to control and free float continuing obligations.

Requirements for Cash Companies are proposed to be moved to section 9. A headline provision may remain in this section stating that a cash company classification can lead to suspension and removal of a listing.

It is proposed that weighted voting shares be recognised in terms of the unreleased Section 3. The amendments propose that an issuer may not issue securities with voting rights differing from other securities of the same class, save for existing weighted voting structured securities.

Newly appointed directors and company secretaries are to notify the JSE within seven business days of their appointment, as opposed to the current 14 days (which appears to be too long for vital submissions).

The responsibility to notify the JSE of appointment as a director is proposed to be placed on the director instead of the sponsor. Further, all director information is proposed to be made public in the announcement, save for personal information, qualifications, and experience. The information to be announced is proposed to be limited to a period of five years before the date of appointment.

The JSE proposes removing the issuers discretion to impose more rigorous restrictions upon dealings by directors, as the JSE believes there is no regulatory relevance to this.

The JSE proposes removing a duplicated Paragraph 3.81 (Companies listed on another exchange), which currently provides that equivalent information is made available to the market of each exchange on which the issuer’s securities are listed, as it is dealt with under Section 18.

The JSE proposes removing Paragraph 3.82 (Information to be processed by the JSE), which currently provides that information that is provided to the JSE for processing should be the same to that which is provided to other parties such as transfer secretaries, as the JSE believes that there is no regulatory value to this paragraph.

The position set out in section 122(3) of the Companies Act is reiterated in the proposals, so that an issuer must announce the information shared with it by notice in terms of section 122 of the Companies Act around share dealings, unless this relates to a disposal of less than 1% of the relevant class of securities.

The JSE proposes removing duplicated Paragraphs 3.85 (i) and (ii) (Liquidation, business rescue proceedings), dealing with notifying the JSE of business rescue and related procedures, as this is dealt with under Section 1.

The JSE proposes removing the JSE’s discretion on the timing to call a shareholders meeting so as not to override the Companies Act position.

Clarity is now provided that announcements on the detail of resolutions which have been voted in writing on should be released, similarly to resolutions passed at meetings.

Regarding the provisions on clearance to deal, when a chairman or other designated director intend to deal in securities in the issuer, they must inform the board or the designated director in advance and receive the required clearance. However, it has now been proposed that the JSE may waive this requirement where the director has no discretion in the transaction.

Section 9 (Transactions)

Small clarifications have been provided in relation to exclusions to transactions by adding wording, as follows:

  • a transaction to raise finance, which does not involve the acquisition or disposal of assets ‘and a related party’ is excluded from being classified as a transaction in terms of Section 9; and
  • one of the instances in which ordinary course of business transactions are excluded are where ‘the issuer or its subsidiary’ is a financial institution which uses funds which are not held primarily for the benefit of its shareholders and the transaction is not with a related party.

The current position is that Category 1 circular and listing particulars must be released within 60 days of a reverse-takeover announcement, failing which the JSE may suspend a listing. However, it has now been stated that the JSE may, in its sole discretion, extend this period.

The provisions dealing with cash companies may be moved from Section 3 to Section 9, as a disposal transaction will lead to a company being classified as a cash company. The periods applicable to suspension and removal have been extended to 12 months for failing to satisfy the applicable conditions of listing (as opposed to six months) and six months for failing to obtain approval from the JSE for a circular relating to the acquisition of viable assets (as opposed to three months) to afford the issuer and shareholders more time to engage on the future prospects of the issuer and to potentially seek opportunities in the market.

Clarification has been provided that a supplementary notification is required after a Category 2 announcement if price sensitive information is identified (similarly to the requirement triggered after a shareholders’ meeting is applicable).

Additional disclosure obligations are being introduced in relation to Category 1 and 2 requirements for mineral and oil and gas companies.

The JSE may waive any Section 9 requirements if it is satisfied that the Rescue Operations provisions in Schedule 11 have been met.

Section 10 (Related Party Transactions)

The definition of ‘related party’ should be amended to include reference to the wider ambit of managers of an ‘asset manager or management company of an issuer’ as opposed to the currently applicable ‘asset manager or management company of a property entity’ (and reference to their controlling shareholders remains). The JSE had initially proposed, in the first phase of its proposals in relation to the Simplification Project, that the definition of related party should no longer include reference to the ‘family cross-holdings test’ and that this should be added to the definition of ‘associate’. However, this particular proposal has fallen away in the latest amendments.

The definition of ‘related party transaction’ should be amended to exclude a transaction amounting to exactly 0.25% (as opposed to only a transaction below that categorisation).

With regard to small related party transactions, the sponsor is to be responsible to ensure the compliance of the fairness opinion in terms of the Requirements, in order to support efficiency and speed in the release of small related party transaction announcements.

The related party provisions dealing with restrictive funding arrangements have been moved from paragraph 11.60(b) to the related party transaction section.

In relation to contents of a circular, reference has been included to additional disclosure obligations for a transaction involving mineral and oil and gas assets as is the case with properties.

The below three sections have been earmarked for release for public consultation later in March:

  • Section 5: Methods and Procedures of Bringing Securities to Listing;
  • Section 11: Circulars, Pre-Listing Statements/Prospectuses; and
  • Section 16: Documents to be Submitted to the JSE.