Cassie Treurnicht of Gryphon Asset Management caught up with his reading and went for a walk. Petri Redelinghuys of Herenya Capital Advisors Ltd. 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 Johannesburg Stock Exchange 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 Ltd. and Prosus NV 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 paralyzed the bourse.
Exchange operator JSE Ltd. said Tuesday’s dealings of 145 billion rand ($9.7 billion), more than double the previous high in 2017, caused delays in processing on its systems.
It apologized to clients “for the inconvenience caused” as trading started at 2:30 p.m. instead of the usual 9 a.m. JSE Chief Executive Officer Leila Fourie said the exchange was working on “corrective action” to ensure it doesn’t happen again.
Thank you to all market participants for your patience during unprecedented times https://t.co/q2ldRKjbQl
— Leila Fourie (@LeilaFourie) August 18, 2021
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 capitalization of about $111 billion, from 473 and a capitalization 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.”
Market participants are advised that A2X is not affected by the start of the JSE equity market being delayed, with the A2X market opening as usual at 09h00.
— A2X (@A2X_Markets) August 18, 2021
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 Ltd., 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.”