Nasiphi Ndevu takes a look at what South Africa’s new JSE rules mean for companies and investors
South Africa’s financial markets are entering a new phase as the Johannesburg Stock Exchange (JSE) introduced the Simplification Project, which repositions the JSE Listings Requirements by using plain language to record concise regulatory objectives, allowing for a better understanding and application of the listings requirements by listed companies, sponsors, shareholders, and investors.
These changes are designed to make it easier for companies to operate, raise capital, and comply with regulations, while still protecting investors.
An additional benefit of the Simplification Project is a significant reduction in the volume of the requirements. Although the rules may seem technical, they have practical implications for businesses, shareholders, and the broader economy. Understanding these changes is essential for anyone involved in corporate South Africa.
Why the JSE Changed the Rules
The JSE introduced these reforms to simplify regulatory processes and align South Africa with global best practices. In the past, companies often faced complex and time-consuming requirements that made it difficult to act quickly. By reducing unnecessary steps and lowering approval thresholds, the JSE hopes to create a more efficient and competitive market. At the same time, the rules still aim to maintain strong governance and transparency, ensuring that investor interests are protected.
These changes also reflect a broader trend in global markets, where regulators are moving toward flexibility and efficiency. By modernising its rules, the JSE is positioning itself as a more attractive platform for both local and international investors. This is especially important in a competitive global economy where companies can choose where to list. A more efficient regulatory environment can also encourage innovation, allowing companies to explore new business models and investment strategies without being held back by rigid rules.
Raising Money Just Got Easier
One of the most significant changes relates to how companies raise money. Previously, companies needed a 75% shareholder approval to issue shares in many situations. Under the new rules, the issue for cash shareholders’ approval threshold has been reduced to a simple majority of just over 50%. This makes it much easier and faster for companies to raise capital, especially when they need funding for growth, acquisitions, or expansion.
However, companies must still comply with the Companies Act, which in some cases still requires higher approval thresholds. This means companies must carefully balance both sets of rules when making decisions about issuing shares.
This change is particularly important for growing companies that need quick access to funding. Delays in raising capital can result in missed opportunities, especially in fast-moving industries. By lowering the voting threshold, the JSE has made it easier for companies to act when opportunities arise. It also allows companies to be more competitive, especially when bidding for acquisitions or entering new markets.
Returning Value to Shareholders
The new rules also simplify how companies return money to shareholders through share buybacks. In many cases, companies now only need a simple majority vote to approve buybacks, and some transactions may not require shareholder approval at all. This allows companies to act more quickly when they want to return value to investors.
Despite this simplification, companies must still consider the requirements of the Companies Act. In certain situations, such as transactions involving directors or related parties, a higher approval threshold may still apply. This highlights the importance of understanding both regulatory frameworks.
Share buybacks are often used by companies to signal confidence in their financial position. When a company buys back its own shares, it suggests that management believes the shares are undervalued. The new rules make it easier for companies to use this strategy effectively. In addition, buybacks can improve financial ratios such as earnings per share, which can make a company more attractive to investors.
Less Dependence on Expert Reports
A major and progressive change is the removal of the requirement for independent expert reports for related party transactions/corporate actions. This change aligns with international benchmarking against certain peer exchanges. In the past, companies had to obtain fairness opinions from independent experts to confirm that transactions/corporate actions with related parties were fair. Now, this responsibility has shifted to the independent members of the board.
This means that directors must take additional responsibility for ensuring that related party transactions/corporate actions are fair, through a public statement on fairness. While this reduces costs and speeds up processes, it also increases the pressure on boards to make sound and well-informed decisions. In practice, many boards may still choose to consult independent experts, even if it is no longer mandatory.
This shift reflects trust in corporate leadership but also raises expectations. Boards must now demonstrate a higher level of diligence and independence, especially when dealing with complex related party transactions/corporate actions. Over time, this could lead to stronger and more capable boards across the market.
Understanding “Arm’s Length” Transactions
The concept of an “arm’s length” transaction is central to the new related party provisions. This refers to a deal where both parties act independently and without any special relationship influencing the outcome. In such transactions, each party seeks to achieve the best possible terms, ensuring fairness and market-related pricing.
If a transaction is not conducted at arm’s length, it may raise concerns about whether one party is receiving unfair advantages. This is particularly important in related party transactions, where conflicts of interest can arise. Ensuring that transactions are fair helps maintain trust between companies and their shareholders.
Directors Under Increased Responsibility
With fewer mandatory expert reports, directors now carry greater responsibility for decision-making. They must carefully evaluate related party transactions in terms of the listings requirements, ensure fairness, and act in the best interests of the company.
This shift places more emphasis on corporate governance and the role of the board. At the same time, directors are still protected under the Companies Act if they rely on credible expert advice and apply their own judgment. This balance aims to encourage responsible decision-making without exposing directors to unnecessary risk.
This means directors must be more active and engaged. Passive oversight is no longer enough. Boards must ask tough questions, challenge management, and ensure that decisions are well justified. Strong leadership at board level will be critical in making these reforms successful.
Financial Assistance and Related Party Transactions
The rules around loans and other financial assistance have also been tightened. Loans and other financial assistance to directors and related parties in terms of to Section 45 of the Companies Act are now more clearly treated as a related party transaction, requiring greater scrutiny and transparency. This change aims to prevent abuse and ensure that company resources are not used unfairly.
By bringing these transactions under stricter oversight, the JSE is reinforcing the importance of accountability and protecting shareholder interests. This is especially important in situations where there may be conflicts of interest. Strong oversight in this area can help build investor confidence and reduce the risk of corporate misconduct.
Supporting Struggling Companies
One of the most practical improvements relates to business rescue. This process is designed to help financially distressed companies recover rather than collapse. Under the new rules, many transactions during business rescue no longer require shareholder approval from a JSE perspective, making it easier to implement turnaround strategies.
This change is significant because it allows companies to act quickly in times of crisis. It also supports job preservation and economic stability by giving struggling businesses a better chance of survival. In a challenging economic environment, this flexibility is particularly valuable. It also aligns with broader national goals of supporting economic recovery and reducing unemployment.
AGM Notices and Compliance Adjustments
Although many changes simplify processes, companies will still need to make some adjustments, particularly in their Annual General Meeting (AGM) notices. These documents may need to include new resolutions or reflect updated approval thresholds.
Companies must also review their Memorandum of Incorporation to ensure it aligns with the new rules. Failure to do so could result in compliance issues, even if the company follows the updated JSE requirements. Careful planning and legal review will be essential during this transition period.
A Shift Toward Stronger Corporate Governance
A clear theme is a shift toward stronger focus on corporate governance, through a dedicated section dealing exclusively with all the JSE corporate governance provisions, from the date of listing and on an ongoing basis. This means that good governance practices remains a vital component to being listed on the JSE.
Companies must ensure transparency, accountability, and effective communication with shareholders.
Investor Protection Remains Important
Even though some requirements have been relaxed, investor protection remains a key priority. Shareholders still have voting rights in important decisions, and companies must continue to disclose relevant information. The difference is that the system now relies more on transparency and accountability rather than strict procedural requirements. This approach encourages companies to act responsibly while giving them more flexibility. Investors, in turn, must remain active and engaged to ensure their interests are protected.
Challenges and Areas of Uncertainty
While the changes bring many benefits, they also create some challenges. Directors may face increased responsibility and potential liability due to their expanded responsibilities.
In applying the new listings requirements companies must be proactive in interpreting and applying the new listings requirements. Listed companies must also ensure that they are guided by their listings sponsors who have been trained in the application and interpretation of the new listings requirements.
What Companies Should Do Next
To adapt successfully, companies should review their internal policies, update their legal documents, and ensure that directors understand their new responsibilities. Engaging with shareholders and maintaining open communication will also be important.
Even though expert reports are no longer always required, companies may still benefit from seeking professional advice in complex situations. This can help reduce risk and support better decision-making. Preparation and awareness will be key to navigating this new regulatory landscape.
Simpler Rules, Greater Responsibility
The JSE’s simplified listing requirements mark a major shift in South Africa’s financial landscape. The new framework makes it easier for companies to raise capital, return value to shareholders, and navigate financial challenges. At the same time, it places greater responsibility on directors and boards to act in the best interests of the company.
Ultimately, the success of these reforms will depend on how well companies adapt. If businesses embrace strong governance and transparency, these changes could lead to a more dynamic and efficient market. While the rules are now simpler, the responsibility for ethical and sound decision-making has never been greater.
Nasiphi Ndevu is the Head of Research at Frank Dialogue Holdings.