Www.jse.co.za 1.1. ATTRACTING FOREIGN INVESTMENT Presentation by Geoff Rothschild Director:...

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ATTRACTING FOREIGN

INVESTMENT

Presentation by Geoff Rothschild

Director: Corporate Marketing &

Communications

21 November 2003

www.jse.co.za2.

The NEPAD Initiative

How Project Thusanang

promotes the development of

Stock Exchanges in Africa

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Project Thusanang

PAB Market Development Forum

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Introduction

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Objectives

Getting up to speed with recent developments

Providing progress update

Discussing proposed Project Thusanang Phase I approach

Provide Phase I funding options

Discuss JSE involvement in the NEPAD Business Group

www.jse.co.za6.

Ground Rules

This is an interactive, two-way communication session

Everyone’s opinion counts

The more ideas the better

Think out of the box

No negatives/ judging

Parking lot issues: all issues out of scope will be discussed at a more appropriate time

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Progress to date

THE AFRICAN STOCK EXCHANGES

ASSOCIATION(ASEA)

ASEA was incorporated in 1993 in the Republic of Kenya

THE AFRICAN STOCK EXCHANGES

ASSOCIATION(ASEA)

ASEA was incorporated in 1993 in the Republic of Kenya

THE SADC COMMITTEE OF STOCK EXCHANGES (COSSE)

COSSE was formed in January 1997 as a private initiative within the Southern African Development Community (SADC) framework

THE SADC COMMITTEE OF STOCK EXCHANGES (COSSE)

COSSE was formed in January 1997 as a private initiative within the Southern African Development Community (SADC) framework

To provide a formal framework for the

mutual co-operation of stock exchanges in the African region through

various processes, encompassing the

exchange of information and

assistance in the development of

member exchanges

ASEA’s AIM

By the year 2006 COSSE Exchanges will

be an integrated real time network of

national securities markets within the SADC community

COSSE’s AIM

Working with ASEA and COSSE, the JSE aims to market African Exchanges, attract investment and identify how to economically benefit the

continent, in line with the aims of Nepad

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Progress to date

Harmonisation of listings requirements of all COSSE Member Exchanges

The JSE has offered the use of its systems and infrastructure to the other SADC Exchanges

Meeting in Botswana, COSSE Members agreed to draft a multilateral MoU relating to the way forward

Exchanges are signing Memorandums of Understanding (MoUs) to stimulate the sharing of technical skills and information

COSSE members recently participated in an initiative with the UNDP and the NYSE, aimed at the development of Capital Markets in Africa

A number of significant steps have been taken in generating co-operation between Africa’s Exchanges:

Considerable momentum has already been established in bringing Africa’s Exchanges closer together

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Dar es Salaam, 2002: The JSE tables a proposal to ASEA to facilitate the development of African Exchanges, in

line with the initiatives of the SADC Committee of Stock Exchanges (COSSE)

Johannesburg, 2003: COSSE Market Development Forum met to discuss and refine the JSE’s proposed model

for the realisation of COSSE’s vision September: COSSE endorsed Project Thusanang, which would be included on future

meeting agendas

Its aims: An agreed conceptual model for the development of an integrated real-

time network of the national securities markets within SADC An agreed approach for the fulfillment of Project Thusanang’s

objectives

Progress to date

July 2003: “Project Thusanang” is launched

“An integrated real-time network of national

securities markets within the SADC community”

N Lu Zim SA GH

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Project Thusanang participating Exchanges

Namibia (NSX):

Market cap (2002): $201m

Value traded: $129m

Listed companies: 13

Zimbabwe (ZSX):

Market cap (2002): $11,689m

Value traded: $131m


Ghana (GSX):


Value traded: $11m

Listed companies: 24 Zambia (LuSE):


Value traded: $2m


Mauritius (SEM):

Market cap (2002): $1,324m

Value traded: $59m


Existing JSE-LSE relationship (LSE-hosted trading platform and information dissemination system, linked by dedicated trans-Atlantic cable)

Source: African Stock Markets Handbook (2003)

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Project PhasesThe project effort will be divided into three phases:

Phase 1 will entail the feasibility and planning and analysis for phase 2 Phase 2 will entail leveraging the JSE’s trading platform for participating African exchanges, while retaining

the existing separation of markets through the use of functional segments with the creation of a “Pan-African Board” (PAB),

Phase 2 will see the creation of a “Pan-African Exchange” (PAE), introducing deeper integration across countries in the primary and secondary equity markets

Differences in Listing Requirements allowed

Procedural differences tolerated for primary market regulation / full home exchange autonomy for secondary market regulation and surveillance

Exchanges trade off JSE SETS trading platform on independent “functional segments”

Use of Broker Deal Accounting (BDA) to create and transmit clearing information to settlement agent

Variety of options to leverage off JSE’s information dissemination and surveillance capabilities

Phase 3 - PAE

Standard listings requirements on the PAE

Standardised regulatory procedures, with recourse to COSSE body, for PAE-listed stocks Exchanges trade off JSE SETS trading platform on independent “functional segments”

Functional segments retained

“Pan-African Exchange” (PAE) functional segment added to SETS, listing stocks meeting PAE listings requirements

Cross-country clearing and settlement capability for PAE stocks

Phase 2 - PAB

Focused on Phase II

Determine the viability of the solution by quantifying business and technology elements in a business case

Estimate the effort required to implement the solution and to scope activities for each phase

Phase 1 – Feasibility / Planning and Analysis

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Conceptual Model – Phase II

Each Exchange trading on their own segment on the JSE infrastructure (Currently ZA11 for NSX)

Each exchange with its own regulations, own fees, own clearing and settlement and information dissemination capabilities (See grayed out area of information dissemination, clearing and settlement)

Lusaka Stock Exchange

Info

rmatio

n

Dis

semin

ation

Members Members MembersMembers

Exchanges Exchanges

Trading

Clearing

Settlement

Investors Investors InvestorsInvestorsInvestors InvestorsInvestors Investors

New

SystemN

ew S

yste

m

Info

rmatio

n

Dis

semin

ation


Exchanges Exchanges

Trading

Clearing

Settlement

Investors Investors

Members Members MembersMembers Members Members MembersMembers

Exchanges ExchangesExchanges Exchanges

Trading

Clearing

Settlement

Exchange Specific Investors

JSE

Infr

astr

uct

ure

JSE

Infrastru

cture

Specific Exchange

Info

rmatio

n

Dis

semin

ation


Exchanges Exchanges

Trading

Clearing

Settlement


New

SystemN

ew S

yste

m

Info

rmatio

n

Dis

semin

ation


Exchanges Exchanges

Trading

Clearing

Settlement

Investors Investors



Trading

Clearing

Settlement

Info

rmatio

n

Dis

semin

ation


Exchanges Exchanges

Trading

Clearing

Settlement


New

SystemN

ew S

yste

m

Info

rmatio

n

Dis

semin

ation


Exchanges Exchanges

Trading

Clearing

Settlement

Investors Investors



Trading

Clearing

Settlement

Exchange Specific Investors

JSE

Infr

astr

uct

ure

JSE

Infrastru

cture

Specific Exchange

Namibian Stock Exchange

Zimbabwe Stock Exchange

Ghana Stock Exchange

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Conceptual Model – Phase III

Each Exchange trading on their own segment on the JSE infrastructure with qualifying securities trading on the Pan African Board

Issues:CurrencyExchange ControlCustodyInfrastructureConnectivity

Info

rmatio

n

Disse

min

ation


Exchanges Exchanges

Trading

Clearing

Settlement


New

MarketN

ew M

arke

t

Info

rmatio

n

Disse

min

ation


Exchanges Exchanges

Trading

Clearing

Settlement

Investors Investors



Trading

Clearing

Settlement

Investors

JSE

In

fras

tru

ctu

re

JSE

Infrastru

cture

Pan African Board

Lusaka Stock Exchange

Namibian Stock Exchange

Zimbabwe Stock Exchange

Ghana Stock Exchange

www.jse.co.za14.

Conceptual Model Summary by Area

FUNCTIONAL AREA PHASE I PHASE II PHASE III

Listings & primary market regulation

• Listings requirements differences allowed• Procedural differences in regulation allowed• Optional use of SENS for communication of price-

sensitive company information

• Standard listings requirements on the PAB• Standardized regulatory procedures, with

recourse to COSSE body, for PAB-listed stocks

Trading • Exchanges trade off JSE SETS trading platform on independent “functional segments”

• Functional segments retained• “Pan-African Board” (PAB) functional segment

added to SETS, listing stocks meeting PAB listings requirements

Secondary market surveillance & regulation

• Full Exchange autonomy retained• Variety of options to leverage off JSE’s surveillance

capability

• Standardized surveillance procedures, with recourse to COSSE body, for PAB-listed stocks

Clearing & settlement • Creation and transmition of clearing information to settlement agent

• Cross-country clearing and settlement capability for PAB stocks

Information dissemination • Provision of FTSE indices• Variety of options to leverage off JSE’s information

dissemination capability

• Alignment of data strategy across Exchanges

Infrastructure & connectivity • Leased-line, ISDN or internet connectivity• ASP-based solution recommended

• Leased-line, ISDN or internet connectivity• ASP-based solution recommended

Fea

sibi

lity

and

Pla

nnin

g an

d A

naly

sis

for

Pha

se I

I

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Anticipated Benefits

The new market will facilitate: The creation of a centralised point for the inflow of foreign capital into the

continent, encouraging the growth of African markets through the provision of a single access point to capital and liquidity across multiple markets;

Ensure the autonomy of the various Exchanges is retained; Increase participating Exchanges’ credibility due to conformance to best

practice listings requirements, internationally accepted trading methodology, state-of-the-art technology, etc;

Facilitate experience sharing in terms of surveillance and self-regulation; Facilitate the development of local Clearing and Settlement infrastructures

and capabilities; Facilitate knowledge building; Provide a facility for participating Exchanges to raise funds; and Encourage markets that are fair, efficient and transparent with proper Price

Discovery and Best Execution.

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Market Development Forum Meeting (24 -25 July 2003) report back

• Meeting attendees were representatives of the JSE; NSX; ZSE; LuSE; GSE; and SEM

• The following key items were agreed upon:– Phase I is to be completed by end of 2003

– Conceptual model to be reviewed and signed off

– Develop Heads of Agreement

– Evaluate funding options

– Ensure buy-in from market participants by each participating Exchange

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Heads of Agreement

Heads of Agreement between the participating Exchanges have been drafted, with the aim to have them agreed and signed prior to the project kick-off (Phase I). The following areas are covered in the Heads of Agreement:

– Intent– Negotiations– Consultation– Role of Facilitating Exchange– Responsibilities of Participating Exchanges– Accession of Other Exchanges– Expenses– Termination of Heads of Agreement

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Stages within the Project Phases

The completion of each high-level phase would follow standard stages of design, development, testing and deployment. Timing would be contingent on the degree of implementation complexity

Phase I Phase II

DeploymentTesting DevelopmentDesignPlanning

& AnalysisFeasibility

Determine the viability of the solution by quantifying business and technology elements in a business case. This is based on a high level business and technical design.

Estimate the effort required to implement the solution and to scope activities for each phase.

Design the system according to business and technical specifications.

Develop the system and business processes according to the design specification.

Prove the solution prior to deployment.

Roll out the solution in the production environment.

Programme Management; Business Case; Stakeholder Management Go Live

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Possible Implementation Approach

A phased approach would be adopted for the proposed implementation, with the sequencing of releases possibly based on the migration-readiness of each of the respective exchanges

Cro

ss e

xcha

nge

fea

sibi

lity

and

plan

ning

and

ana

lysi

sEg: Zimbabwe

(ZSE)

Eg: Zambia (LuSE)

Eg: Mauritius (SEM)

Eg: Ghana (GSE)

6 Months 12 Months 18 Months 24 Months

Release 1

Release 2

Release 3

Release 4

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Project Approach & Timelines

The project approach focuses on defining the overall framework within which the participant exchanges need to operate, understanding the specifics of each participant exchange, and then determining the implementation plan and effort estimates.

Mobilise Project Define ZSE business

model & assess impact

Assess impact on JSE/ LSE

Develop detailed implementation plan for Phase II

Project management

Develop business case for Phase II

Communication and stakeholder management

Prepare for site visits

2-3 weeks 3 weeks2 weeks

Define SEM business model & assess impact

Define LuSE business model & assess impact

Define GSE business model & assess impact

2 weeks

The success of this project is highly dependent on the participation in workshops, during site visits, from key individuals in the following departments within each Exchange: Trading Services; Listings; Surveillance; Clearing & Settlement; Information Dissemination; and IT

www.jse.co.za21.

Project Team Structure

Project Management

1 x JSEBusa Mkhize (Accenture)

Impact Assessment (ZSE & SEM)2 x Accenture

Impact Assessment (LuSE & GSE)2 x Accenture

Implementation Plan & Business Case

4 x Accenture*

• The implementation planning and the business case development will be conducted by the ZSE & SEM and LuSE & GSE teams. The total number of Accenture resources is 5, including the Project Manager.

Project Director

John Burke (JSE)

Steering Committee

John Burke (JSE)4 x Exchanges’ Reps

Raj Makanjee

SME

Raj Makanjee (Accenture)Leila Fourie (Accenture)

www.jse.co.za22.

Project Phase 1 Funding

• Following up with the US State Department • Possibility of participating Exchanges to fund

their respective part of total project costs• Need to agree on timelines by which the

funding issue must be resolved

www.jse.co.za23.

JSE - NEPAD : An update

The JSE involvement in the NEPAD business group – an update:

– Start– Focus– Deliveries

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