Cassie Treurnicht of Gryphon Asset Management caught up with his reading and went for a walk. Petri Redelinghuys of Herenya Capital Advisors used the time to catch up with clients, while investor Simon Brown kept his eyes on the screens, waiting for trading to resume.
They all agree: The five-and-a-half-hour outage on the JSE that prevented them buying and selling stocks until well into the afternoon on Wednesday was not a good signal for a bourse that touts itself as Africa’s finest, in a country that needs to attract foreign investment to help fuel growth and reduce unemployment.
“You know how bad this makes us look,” said Treurnicht, who manages funds out of Cape Town. “That dents our credibility and just slots in with the rest of the narrative that South Africa is underinvested and neglected. Pathetic!”
Systems at Africa’s oldest and biggest exchange proved unable to process deals stemming from a massive share-swap transaction between Naspers and Prosus in time for Wednesday’s open. The transaction changed the companies’ weightings on key South African indexes, forcing money managers to adjust their portfolios. The heavy trading that ensued paralysed the bourse.
Exchange operator JSE said Tuesday’s dealings of R145-billion, more than double the previous high in 2017, caused delays in processing on its systems. It apologised to clients “for the inconvenience caused” as trading started at 2.30pm instead of the usual 9am. JSE CEO Leila Fourie said the exchange was working on “corrective action” to ensure it doesn’t happen again.
‘Black swan’ event
While this was a “black swan” event, the JSE took some criticism for dated systems that may increase the attractiveness of upstart rivals that have opened in recent years. The exchange, one of the world’s 20 biggest, has dwindled to 150 listed companies with a combined market capitalisation of about US$111-billion, from 473 and a capitalisation of $183-billion in 2003.
Wednesday’s failure has already prompted calls for more competition in South Africa’s financial markets. There should be a push to give brokers options other than the JSE’s “broker dealer accounting” system, which was at the heart of Wednesday’s glitch, said Kevin Brady, CEO of A2X Markets, an alternative exchange based in Johannesburg. Ironically, he was on holiday when the chaos struck.
“Brokers should be free to choose what systems they want to use for their post-trade, they should not have to use the JSE one, particularly when it’s 35 years old,” said Brady. “If the system goes down, the market is dead. There has to be a push to unlock that hold on the post-trade process.”
In 2017, the JSE paid out claims from clients and conducted reviews after technical issues prevented equities and derivative trading for an hour and 45 minutes. It hasn’t commented on whether it will do so again.
“It’s difficult to quantify costs because they relate to the opportunity costs of not being able to access the market until much later in the afternoon,” said Doug Blatch, head of Africa trading at Ninety One. “In the event that underlying client flows were not able to be processed due to insufficient liquidity to complete, then that in turn can impact other commitments made.”
For many traders, this was a particularly bad day for the exchange to break down.
Naspers, the largest shareholder in Tencent Holdings, often gets used as a proxy trade when the WeChat operator and China’s biggest company releases results, which happened while the JSE was offline on Wednesday.
“There is really nothing you can do when the JSE goes down,” said Nick Kunze of Sanlam Private Wealth. “Yesterday’s re-weighting and the Tencent results — the timing couldn’t have been worse. But they say it doesn’t rain, it pours.” — Reported by Loni Prinsloo and Adelaide Changole, (c) 2021 Bloomberg LP
