JSE Listings Requirements

The new JSE Securities Exchange South Africa (JSE) listings requirements came into effect from
1 September 2003, with the exception of certain transitional provisions, which became effective from 1 January 2004. The purpose of the latest rewrite is to further align the Listings Requirements with international best practice, thereby aiming to enhance the status of a JSE listing and increase investor confidence in the South African equities market.

The new Listings Requirements greatly increase the discretionary powers of the JSE and place more onerous obligations on the directors and sponsors of JSE listed entities. The Listings Requirements are complex and it is not the intention of this Guide, nor is it possible, to provide detailed direction on all situations covered by the Listings Requirements. This section sets out in broad brush detail some of the more significant changes in the Listings Requirements and their impact on JSE listed companies, and their directors. It is not exhaustive, and given the complexity of the Listings Requirements, directors who require particular guidance on an aspect of the Listings Requirements are urged to contact either of the publishers of this Guide.

The most significant amendments to the Listings Requirements include those that deal with the increase in the general authority of the JSE, the scope and application of the Listings Requirements, directors’ dealings, the requirements for the publication of trading statements, corporate governance compliance and sponsor independence.

Some of the major impacts include:

• the requirement on companies to adopt International Financial Reporting Standards (“IFRS”) in financial years commencing on or after 1 January 2005. Companies reporting under other acceptable set of financial reporting standards are required to provide a reconciliation to IFRS

• additional requirements relating to the publication of financial information including a requirement that companies who report quarterly results are required to publish interim reports which are compliant with SA GAAP, the Companies Act and the Listing Requirements

• new requirements in respect of auditors and prescribed changes in the role of auditors, including the provisions that the audit committee determine the principles for recommending the use of external auditors for non-audit services and that auditors are required to modify their audit opinion if the issuers do not adequately disclose the information envisaged by the Listings Requirements

• specific conditions requiring trading statements to be published by companies as soon as they become aware that the financial statements for any reporting period will be materially different in one or more of certain prescribed respects. The Listings Requirements also contain details of what should be included in the content of such trading statements

• specific requirements regarding corporate governance, including the specification of changes in the composition of the board of directors, revised definitions of what constitutes independent directors, a requirement for the full disclosure of directors’ remuneration and the mandatory separation of the roles of the Chief Executive Officer and Chairman

• the appointment of audit and remuneration committees, comprising a majority of independent non-executive directors, in accordance with the provisions of King II

• the introduction of personal liability of individual directors for non-compliance with the Listings Requirements, and the prescription of penalties of up to R1 million in respect of each director individually, as well as the company, for each instance of non-compliance

• the formalisation of the role of the GAAP monitoring panel, formed by the JSE and the South African Institute of Chartered Accountants to serve in an advisory capacity to the JSE on questions of non-compliance with South African GAAP or IFRS by entities listed on the JSE

• additional requirement on companies implementing medium and large transactions, including prescribed working capital requirements

• the widening of the definition of related parties and related party transactions requiring specific procedures and approvals

• a related party is a material shareholder able to exercise control over at least 10% of equity shares, a director and principal executive officer including those of subsidiaries, fellow subsidiaries and holding companies, any advisor who has a beneficial interest in the issuer or any associates of the above

• related party transactions requiring full publication and shareholder approval are those where the percentage ratio (defined as the size of the transaction relative to the market capitalisation or the dilution that will occur in the shares ) is more than 5%. Transactions between 0.25% and 5% being regarded as small related party transactions and are still subject to disclosure requirements albeit less onerous

• listed entities must disclose the extent of their compliance with King II and explain areas of non compliance

• companies that wish to delist must obtain the support of their non-controlling shareholders. A fair and reasonable report must be obtained where an offer is made to minorities, or a specific issue or repurchase of shares or a related party transaction takes place. A fair and reasonable report is one prepared by an independent expert on the fairness of the offer made to all the parties affected by the offer

General powers of the JSE

The Listings Requirements may be changed by the issue of practice notes, as opposed to merely clarified or expanded upon as was previously the case.

Discretion of the JSE

Whilst generally bound by the Listings Requirements, the JSE is able to exercise considerable discretion when dealing with its member companies (“issuers”). Issuers are therefore required to observe the spirit as well as the precise wording of the Listings Requirements. Despite the fact that an intended transaction may be formally compliant, the JSE has the right to reject any transactions which, in its discretion, is not deemed to be within the spirit of the Listings Requirements. The JSE may, should it deem it to be in the public interest, also require an issuer to disclose information not called for by the Listings Requirements.

Companies listed on the JSE are required annually to submit a certificate by
31 January of each year confirming their compliance with the Listings Requirements for the preceding year. If the certificate is not received timeously, and after a grace period of 14 days, and a further 7 days during which the issuer must make representations as to why its securities should not be suspended, the JSE may suspend the listing. The JSE has the power to suspend and to later terminate a listing if an issuer has failed to comply with the Listings Requirements.

The following provisions relate specifically to directors of JSE listed companies and have been set out in greater detail:

Changes to directorate
As soon as they arise, a company must notify the Listings Division of the nature and effective date of changes to its directorate including new appointments, resignations and removals and changes to executive responsibilities (This rule does not apply to directors who retire and who are re-elected at the AGM.) Apart from this immediate notification, details of the changes must also be included in the next listing particulars, interim and annual report. [LR 3.67; 3.70]

New directors
A directors' declaration for a new director is required within 14 days of the appointment. The company must ensure that newly appointed directors are free of a conflict of interest between the duties they owe to the company and their private interests. [LR 3.68; 3.71]

Dealing in securities by directors of listed companies
A listed company must immediately provide the JSE with full details of transactions in the company’s securities by or on behalf of a director (whether held directly or indirectly, beneficially or non-beneficially, including immediate family members). The JSE will publish this information as soon as it is received through SENS. [LR 3.72 - 3.75]

Conditions for listing

Directors
Directors and senior management must collectively have appropriate expertise and experience for the management of the group's business, details of which are to be disclosed in listing particulars prepared by the company. Companies seeking a listing must submit to the JSE a director’s declaration for each director, evidencing that the directors are free of conflicts of interest between the duties they owe the company and their private interests. [LR 4.8 & 4.9]

Listing particulars

Directors and management

The full names, business addresses and the functions in the group of the following persons must be disclosed:

• directors of the company and its material subsidiaries, as well as of its founders, if the company has been established for less than 5 years
• in the case of a new applicant and its subsidiaries, any senior manager who is relevant to indicate that the company has the appropriate management expertise and experience.

Activities performed by these persons outside the group must be indicated where these are significant with respect to the group. [LR 7.B.1]

In the case of each person described above details of that person's relevant management experience and the following information is required:

• full names (specifying chairman, chief executive officer and managing director, if any)
• occupations
• business addresses
• nationalities
• names of all companies and partnerships of which such person has been a director or partner at any time during the previous 5 years, indicating whether or not the individual is still a director or partner
• details of any bankruptcies or individual voluntary arrangements of such person
• details of any receiverships, liquidations or voluntary arrangements with creditors generally, where such person was a director with an executive function or a partner of any partnership, at the time of or within the 12 months preceding these events
• details of any public criticisms of such person by statutory or regulatory authorities (including professional bodies) and whether such person has ever been disqualified by a court from acting as a director of a company or from acting in the management or conduct of the affairs of any company
• any offence involving dishonesty [LR 7.B.2]

An analysis in aggregate of each director or proposed director’s remuneration paid during the last financial period by the company. This includes any proposed payments to any person in their capacity as a director. A distinction must be made between executive and non executive directors. The following must be disclosed [LR 7.B.7 - 10]:

• fees for services as a director
• basic salary
• bonuses and performance related payments
• sums paid by way of expense allowances
• any other material benefits received
• contributions paid under any pension scheme
• any commission, gain or profit sharing arrangements
• any share options including strike price, period and other relevant information
• fees paid to a third party in lieu of directors fees are to be disclosed in a similar manner to directors emoluments above
• a summary of the provisions of the memorandum and articles of association of the issuer with regard to directors voting on proposals in which they are materially interested e.g. remuneration and retirement age

Responsibility of directors, managers and advisers regarding circulars

Every director of the applicant company must sign circulars, and if any other person has accepted responsibility for any information contained in the circular, he shall also sign the circular. [LR 7.B.22]

Requirements for executive and staff share schemes

Executive directors may not be appointed as trustees of share schemes. Only non-executive directors may be appointed as trustees of the share scheme provided they do not benefit from the share scheme. [LR 14.4]

Director's declaration

The updated JSE Listing Requirements introduced a new schedule (Schedule 21) to be completed by any new director and submitted to the Listings Division within 14 days of the appointment becoming effective. The declaration includes personal details, qualifications and experience, other directorships or partnerships and questions such as those that follow which relate to integrity and the directors' previous 'track record' as a director of companies:

• has any company been put into liquidation or been placed under judicial management or had an administrator or other executor appointed during the period when the director was (or within the preceding 12 months had been) one of its directors, or alternate directors?
• has the director ever been adjudged bankrupt or sequestrated, ever been a party to a scheme of arrangement or made any form of composition with his creditors, ever been found guilty in disciplinary proceedings by an employer or regulatory body due to dishonest activities, or barred from entry into any profession or occupation?
• has the director at any time or has the company of which he was a director / alternate director or officer at the time of the offence been convicted in any jurisdiction of any criminal offence, or an offence under the Companies Act?

The director must sign a declaration that the questions have been answered truthfully and give authority to the JSE to disclose any of the foregoing particulars to the sponsor of any company of which he is a director and / or such regulatory bodies as the JSE may in its discretion think fit.


Key questions: 

• As a director of a listed company, am I fully aware of and am I complying with these new JSE requirements? 
• Do I understand the penalties attached to inadequate or non-compliance? 
• Am I making full use of the resources available to me (e.g. the company secretary, compliance officer or professional adviser) to help me comply?