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Farewell The King Of The Exchange… Long Live The Newton-King!

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There is no point in speculating as to what Russell Loubser, the outgoing Johannesburg Stock Exchange chief executive officer, will be doing next year—because Loubser himself does not know. He could take the route of a hands-on CEO position at a financial institution, as did previous JSE president, Roy Andersen, at Liberty Life. There is also the option of several independent non-executive directorships, for a quieter life after many years of revolutionizing Africa’s biggest exchange. Another possibility is—corporate governance and Companies Act requirements permitting—to perhaps sit on the exchange board itself as a non-executive director or eventually as chairman.

Russell Loubser and Nicky Newton – King

“I am not entertaining any thoughts as to what comes after life at the JSE,” says Loubser, who originally comes from Slurry, near Mafikeng.

“Until the end of this year, I remain completely focused on my work at the exchange. To prematurely assess opportunities could give rise to conflicts of interest. People are approaching me and my response is to come back at the end of the year, if still interested. Nothing is going to distract me in these last few months.”

A few things are certain for Loubser, regarding life after the JSE. As a member of the South African Airways board, the link will continue. So, too, will his three-year ministerial appointment as a member of the Takeover Regulation Panel, previously the Securities Regulation Panel. But as for the rest of it, Loubser says there is genuinely nothing definitive. “It’s not as if I have something planned and will reveal it at the last moment.”

An initial five-year contract, starting early 1997, ended up being 15 years of leadership. When Loubser joined the JSE, trading volumes in that first year were 17,854 billion shares, and 2,3 million deals. For 2010, volumes were 71,252 billion shares from 23,8 million deals.

Loubser always credits his team: “It has been an absolute pleasure to work with people who have been so dedicated to improving the exchange and developing themselves. The early days were extremely difficult. The press was relentlessly critical, the exchange at that time was wholly owned by the stockbrokers, it was not offering value, and was viewed as a necessity in order to trade equities. At that time, no one could imagine demutualisation, listing and creating value for the financial community. With this committed team, we proved our critics wrong.”

Loubser’s management style is to surround himself with smart people and give them lots of space. “You then get the best out of them.”

When Loubser took over, the JSE had an extremely poor reputation at home and abroad. Despite being the largest emerging market at that time, and surprisingly highly ranked by size in world terms, it was seen as an inefficient boys’ club plagued by insider trading and front running. Roy Andersen had made a start with transformation, such as implementing new software and trading systems, and the Big Bang deregulation which included allowing corporate membership of the exchange.

“The criticism we received in those initial years was fair and completely justifiable,” says Loubser. “But even when we started demonstrating our progress, the taint persisted. We had a difficult audience to win over and the first few years were very testing.”

With the JSE clearly demonstrating its ability and achievements, and cleverly diversifying its income stream, attitudes started to change and criticisms became compliments. However, brokers would still like to see lower trading prices. “We are fully conscious of this,” says Loubser, “and are benchmarked against other exchanges by independent parties to see how competitive our pricing is. Trading revenues are a simple function of volumes and pricing, and if volumes grow, there is certainly scope to reduce pricing.”

Despite having accomplished so much at the JSE, there is one huge task that Loubser regrets he will not be able to see through to the end—the complete overhaul of the bond market, which the JSE acquired in 2009. This particular market comes in for much criticism regarding its antiquated telephonic trading, selective pricing, and operating on a foundation of personal connections and relationships. The wish list for this market is a digital, visible, transparent central order book that promotes price discovery and improves liquidity, especially for languishing corporate and municipal bonds.

“My trading career started in the fixed income market, so I would have liked to have been on the ground and involved when the JSE cleans up the bond market, as it did with the equity market,” says Loubser, who represented the banking sector during the formation of the Bond Market Association, now the Bond Exchange of South Africa. He has no doubt that incoming CEO Nicky Newton-King will be able to achieve this. “It will be quite a challenge for her, but she has a fantastic executive committee on which she can rely, and she will need their talents. Severe changes as to how the bond market works are imperative and will be good for South African financial markets.”

One disappointment—despite much effort—is that other exchanges in Africa have not taken up offers to use the JSE’s technology and platforms in order to make their own markets more efficient. When Loubser took over at the JSE, he looked to exchanges in countries such as Australia and Singapore. “We were shocked by our glaringly obvious poor services and huge inefficiencies, and this kicked us into action. Exchanges in the rest of Africa should go through this same self-examination and take a good look at themselves and the potential they have to play in transforming their markets and economies. As yet, they are not seeing the urgency and benefits of an innovative exchange. A good exchange is a strategic national asset.”

Unlike many CEOs in South Africa, Loubser is not afraid to make political comment when appropriate. He has addressed issues such as government spokesperson Jimmy Manyi’s accusations that blacks do not own enough of the companies listed on the JSE board, and he supported Trevor Manuel, South Africa’s Minister in the Presidency in charge of the National Planning Commission, for taking Manyi to task on racism. “At present, South Africa does ‘work’. But this does not mean our leaders can simply stop at this point. It can be so much better and we should not settle for mediocrity,” says Loubser. His frankness also extends to the tragedy of Zimbabwe under the Mugabe regime.

As the JSE grows increasingly more attractive as a takeover target, Loubser says this type of decision would be for the shareholders. “But my recommendation at this point in time would be to wait a few more years. The exchange is presently working on many things that would add value. At a later stage, a tie-up with an appropriate party would be beneficial to shareholders, and would help take the exchange to the next level.”

Loubser says that despite persuasive efforts from his staff to throw him a huge goodbye party, that would not be his style and he prefers a quiet exit. “I would rather get all my staff together in the auditorium a few days before I leave to say my farewells and thanks.” Leaving the JSE after an incredible 15 years will no doubt be heart-rending for Loubser.

“I will miss the JSE a lot. Let’s just say it will be a very difficult and emotional time for me.”

 

New JSE CEO—more than well prepared for the role

Nicky Newton-King has been the JSE’s deputy CEO since 2002, joining the exchange in 1996. Her professional qualifications and experience are legal, whereas Loubser is a chartered accountant with a merchant banking and trading background. Prior to this, Newton-King was a partner at legal firm Webber Wentzel, specialising in the securities and financial services industry, with the JSE as a client.

As the JSE is regarded as one of the best regulated exchanges in the world, Newton-King feels strongly about the development of financial markets across the rest of the continent.

“It is time for African exchanges to stand up and make some brave choices if they want to harness emerging market appetite and attract significant international investment. They run the risk of missing out on the emerging market story if they do not focus on building large and sustainable exchanges.”

African stock markets are now at a point of critical inflection, as was the JSE in the early 1990s. “The JSE has been through its much-needed development, and has the battle scars to show for it,” says Newton-King. “It is now by far the largest exchange in Africa and internationally respected. African exchanges need to similarly decide on their strategies for the future. Are they going to stand alone and individually compete for business, or will they work together to leapfrog stock exchange development in Africa?”

Newton-King says that African stock markets must realize that no one owes them a living. “They are not there to serve themselves. If they do not provide offerings of an appropriate and international quality to investors and issuers, they will be bypassed.”

One route would be to regionally harmonize the rules in African capital markets, as seen in the European Union. However, Newton-King highlights the problem of which markets would be willing to concede to the rules of others. Another possibility for African exchanges is to promote cross-listings, in which a company is listed in more than one country, as dual-listings generally increase trade in the home country. Newton-King says that ideally, the dual-listed companies should come to the JSE for their secondary listing—rather than go offshore to London or other such markets. “African companies should preferably stay on the continent.”

Yet another possibility is to create African technology hubs that allow execution in multiple venues through a single channel of access. Newton-King notes that exchanges must then be willing to collaborate and resolve issues such as hub ownership and operational responsibility. A fourth route would be to establish Pan African stock exchanges, by collapsing existing individual exchanges into regional ones. However, Newton-King again highlights the potential problems of ownership and location, and believes this way is more suited to environments which are starting from nothing and have no legacy exchanges to deal with.

Newton-King recommends a combination of cross-listings and technology hubs to promote African stock exchange development. “This would lead to meaningful and accelerated change which would best serve the interests of issuers and investors. African stock exchanges should not go it alone. They should have the courage to work together to create robust capital markets across the continent.”

Looking to the JSE, Newton-King says one important strategy for the exchange in the near term is to decide on a trading model for the bond market. “We have now owned this market for two years and are focused on determining a model which promotes transparency and hence liquidity.”

She anticipates an exciting future for the JSE. “This environment is constantly changing. New regulations, technological developments and innovative products keep us motivated in our aim of linking South Africa to global markets and maintaining our position as a world-class exchange.”

 

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