The 14.5% increase inrevenue combined withcontrolled operating costs led the JSE Limited, the company that operates the Johannesburg Stock Exchange, to report a 13.1% increasein net profit after tax to R207.6m (H1 2009: R183.5m).
“These results come at a time of increased competition in the global exchange industry, the growing success of alternative trading venues and increased regulation of both exchanges and the trading of financial products to try to reduce the chance of another financial fallout on the same scale as the global financial crisis,” says Russell Loubser, CEO of the JSE.
Global financial markets have also experienced fluctuating investor sentiment which has been echoed in the local market. The increased volatility has been good for the JSE Ltd. Group revenue climbed 14.5% to R623.3m (H1 2009: R544.5m) largely owing to increased trade on the spot equities market. Foreigners were again net investors, investing R19.1bn in South African equities and R36.2bn in local bonds. Liquidity on the equities market rose to 53% for the period (H1 2009: 48.8%). Investors are slightly less hesitant about equity derivatives and commodity derivatives recovered somewhat, rising 15.9% to R20.6m (H1 2009: R17.8m). As a result, the overall performance of the Group remained resilient.
As a predominantly fixed cost business, with technology and people comprising the main expenses, the JSE’s expenses increased 13.3% to R393.2m (H1 2009: R347.0m) largely due to an increased headcount as a result of the BESA acquisition as well as additional IT personnel.
The Group’s revenue for the period is derived from diverse sources:
· Listings - Six new company listings occurred during first six months of 2010 - five on the main board (including Wilderness Safaris on the Africa Board) and one on AltX – compared with four for the same period last year. This is in line with listings numbers on member exchanges of the World Federation of Exchanges. Revenue in the JSE’s Issuer Services division, which handles new listings, increased 17.5% (H1 2010: R45.8m; H1 2009: R39.0m)
· Spot Equities market - The number of spot equities market transactions rose 22.4% (H1 2010:12.2 million; H1 2009: 10.0 million), generating revenue of R164.8m (H1 2009: R145.3m), a 13.5% increase. In line with their global counterparts, the equities team continued to focus on marketing their products and services more broadly to their customer base during this period:
1. A new billing model was introduced in March 2010 to reduce total trading costs, encourage high frequency trading and reward high volume participants. Trade volumes have increased since.
2. The exchange added an anonymous trading facility which allows for the execution of large trades through hidden order functionality in the central order book.
3. The JSE continued to pursue its strategy of increasing the financial knowledge of South Africans in order to increase the number of retail investors and add to trade volumes.
4. New product innovation continued. A new range of commodity warrants and collective investment products including exchange traded funds were introduced. New products were also added on other JSE markets.
· Equity derivatives market – contracts traded in this market rose by 6% to 84.2m (H1 2009: 79.4m). The biggest increases came from international derivatives. Value traded rose 26.2%. Despite this, revenues eased 0.7% to R53.3m (H1 2009: R53.7m) mainly owing to two shifts in the product mix: first, a move from options to futures and second, a drop in the value of Can Do derivatives traded during H1 2010 compared with the previous period. In an effort to bring greater liquidity and encourage greater activity and transparency, the JSE adopted a maker-taker model for its equity derivative market effective 6 July 2010. The JSE is already noticing increased use of the upgraded derivatives engine following the introduction of the new pricing.
· Commodity market - derivatives contracts traded increased by 12.1% (H1 2010: 1011 712; H1 2009: 902 370). Commodity options accounted for most of this growth, owing to volatility in agricultural prices at the start of 2010. This shift in product mix impacted favourably on revenues which rose 15.7% to R20.6m (H1 2009: R17.8m) during the period.
· The Interest Rate market generated trade reporting revenue of R16.4m. Reported cash volumes in H1 2010 climbed to R7.33 trillion (H1 2009: R6.88 trillion).
· Revenue generated by the Information Products Sales division, which is focusing on new and existing offshore clients in a tough market following the downsizing of several global institutions, climbed 6.5% to R58.7m (H1 2009: R55.1m). Marketing efforts are currently focused on the FTSE/JSE Equally-Weighted Top40 Index, launched during the period. Live terminals numbers for corporates have stabilised in contrast to those lost during 2009.
Prospects
2010 is a year of consolidation for the JSE:
· Following the BESA acquisition, dialogue continues with interest rate market participants and industry groups to introduce a strategy which will succeed in growing the exchange traded interest spot and derivative market.
· The JSE continues to pursue its Africa strategy. The Africa Board, which aims to encourage African companies domiciled outside South Africa to take a secondary listing, welcomed its second listing, Wilderness Safaris in April 2010. The JSE looks forward to welcoming some new listings in the coming period;
· The JSE continues along the path of replacing its back office technology. This is in test phase and initial tests have been satisfactory.
· The JSE will continue to focus on increasing liquidity and improving the competitiveness of the exchange, however as a significant portion of revenue is dependent on the level of trades on the exchange, the JSE is unable to predict future profits.
· In the equity derivatives market, the exchange continues to encourage on-exchange central order book trading. It will also work on providing services to clients who previously traded off-exchange but who now want to trade on-exchange to manage risk.
· In August 2010, additional hard commodity instruments – silver and copper derivatives – were launched under licence from the CME Group.
“The JSE remains committed to delivering value to issuers and investors. The consistent focus is on building a sustainable business model, with depth and breadth. The Board is optimistic that this should be achieved through achieving its strategic objectives, combined with the strength of JSE regulation and the quality of the JSE’s service,” concludes Loubser.
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