From sandwich boy to JSE chairmanComment on this story
It was with a profound sense of sadness that I signed off the Stock Exchange News Service (Sens) release in November last year announcing my retirement as chairman of the JSE as from the annual general meeting on May 8 this year.
It was in effect concluding a 12-year stint as chairman and a 49-year association with the exchange.
As my father Max was a well known stockbroker and chairman in 1970 and 1971, it also ended a 70-year bond between the Borkum family and the JSE.
In this, my final column in Business Report, I’d like to reflect on some of the people and events that helped guide the JSE’s destiny during my time at the bourse.
I was chairman of the JSE in 1993 and 1994, then I was a founder member of the JSE board in 2000 when it became an incorporated company. I became chairman again in 2002 until this year.
In January 1965, I joined brokerage Davis & Wiley as a script clerk. Theoretically, this meant counting share certificates but, in practice, I was a sandwich delivery boy. After a year I was promoted to unauthorised clerk on the floor of the exchange – a glamorous title for a messenger.
The highlight of my working hours was to book the six telephone calls per day to London that the brokerage was allowed by the Post Office. This was to facilitate arbitrage with shares on the London Stock Exchange (LSE).
The general manager in the late 1960s was Adam Lynn. At that time, the JSE was a male club run by the members, for the members and policed by its members. The pub opened at 11am with pink gins lining the bar counter.
The next general manager was Dick Clarke, who probably made the first moves to modernise the exchange. During those days in Hollard Street we used the High Change system, which meant you could only deal in a share once its name was called.
With the arrival of the boom years in 1968 and 1969, a stock whose name started with a letter at the end of the alphabet often had to wait until late afternoon to be called and was thereby considerably disadvantaged. Clarke persuaded the committee to introduce unrestricted trading after the opening bell.
The exchange moved in 1978 to Diagonal Street, where it remained for 22 years before relocating to Sandton in 2000. Sadly, the JSE pub, known as the Red Room, was left behind.
In the mid-1970s, Tony Norton became the executive president. He was employed by the then chairman Hugh Boonzaaier, who was convinced that the stockbrokers could not run their own businesses and the JSE at the same time.
He managed to persuade the committee at the time of the soundness of his logic. This led to a shift in power from the committee made up purely by members to the executive president.
Norton was followed by Roy Andersen, who commissioned the enquiry on whether the JSE should go the way of electronic trading following the Big Bang in London. Our “Little Bang” went off in March 1995 and the closing of our trading floor a year later ended 108 years of open outcry.
During Andersen’s tenure from 1992 to 1997 a number of other events took place that would have a significant effect on the exchange, its stockbrokers and our listed companies.
In 1994, democracy arrived, which led to the easing of exchange controls and the abolition of the financial rand. This meant companies like SA Breweries and Anglo American could spread their wings globally and list on other exchanges.
Up until this time they had to be content with merely gobbling up the smaller companies in South Africa.
It is interesting to note that whenever South African companies took a primary listing on, say, the LSE and a secondary listing on the JSE, we always noticed a greater interest and trade in these counters on the JSE.
In 1995, the Stock Exchange Act allowed banks and other financial institutions to take over our often under-funded stockbroking partnerships and an amendment to the rules allowed principal to client trading. This increased trading volumes and new products were introduced. Now released from the strictures of apartheid sanctions, the JSE could start aligning itself with its peers in the World Federation of Exchanges (WFE) and global markets.
During this period my own stockbroking partnership, Davis Borkum Hare, was taken over by Smith New Court which was subsequently taken over by Merrill Lynch. This led to me becoming chairman of Merrill Lynch South Africa.
As exchanges evolved they adopted the technology of the time. I remember when pen and paper were used to record trades, and chalk and chalk boards were the basic technology to display prices.
For more than 100 years we battled with the frustrations of paper script – lost script, stolen and forged share certificates, safe custody storage problems, slow delivery from overseas and from mail and messenger services.
Therefore, one of the most significant changes in my working career must be the electronic settlement of trades.
The introduction of electronic trading enabled us to establish Strate (share transactions totally electronic). It acts as central securities depositary for electronic post-trade settlement of the financial products traded on the JSE.
In short, Strate gives us finality of settlement on the fifth day of trade and timeous and accurate payment of dividends and other corporate actions. We are in the process of shortening the settlement to the third day after trade.
At the time Strate was being established the JSE was still owned by its members and although electronic trading upped our turnover, we still needed additional funding for the venture. The result is that the exchange now owns 45 percent of Strate and five major banks the balance.
Andersen was succeeded as chief executive by Russell Loubser (1997 to 2011). During Loubser’s watch the JSE became a highly professional institution on a par with the leading exchanges in the world. In 2003, our AltX board for small and medium-size companies was established.
Last year, we celebrated the 10th anniversary of AltX, which, since its inception, has supported the listings and growth of more than 100 small and medium-size companies resulting in 22 migrations to the main board. As I have frequently pointed out, all the large companies in this country started small.
Probably the highlight of my career came in June 2006 when I presided over the listing of the JSE and I was proud that my father was able to be present at the occasion. In fact, as far as I am aware, we are the only father and son who have held the position of chairman of the exchange.
In 2009 we took over the Bond Exchange of SA (Besa) and many of the diverse products that are now traded through our eight revenue streams were developed. Loubser always played a leadership role in stock exchange affairs both internationally and in Africa.
He was a director and treasurer of the WFE and went out of his way to encourage the growth of African stock exchanges and to have them accepted into the federation.
In October 2011, the JSE hosted the general assembly of the WFE. What touched me most deeply in hosting these prominent business people from around the world was how far our country had progressed.
I remembered that in 1987, the year the JSE celebrated its centenary, the federation agreed to hold its general assembly in Johannesburg. However, due to strong political pressure, the JSE had to amend its invitation.
Russell also contributed greatly in the regulatory sphere in South Africa through his participation in the Financial Services Board (FSB).
There is a saying in the US which is gaining increasing traction: “Put a policeman on the street and you save people’s purses – put a strong regulator above financial services and you save people’s pensions.”
I’m proud that over the past four years the JSE has been placed first in terms of market regulation in the World Economic Forum’s Global Competitiveness reports.
The transition from Russell Loubser to Nicky Newton-King was seamless and she has proved to be a strong and imaginative leader. In July 2012, our Millennium Trading Engine was returned from London to Johannesburg, which resulted in execution speeds 400 times faster.
Contrary to a number of ill-informed press reports I would like to point out that the trading interruption we experienced a couple of weeks ago was the first for over a year.
Newton-King and her team delivered strong results for 2013 – the best since listing. What was particularly pleasing to me was that we were able to return an amount of R84 million (5 percent of group revenue) to equity market clients by way of a rebate and declare a dividend for the year of R3.50 (2012: R2.50) plus a special dividend of 50c a share. Nothing gives a board of directors greater pleasure than declaring results like this.
During the lead-up to the election there has been much comparison in the media of life in South Africa today compared with conditions at the time of the first democratic elections in 1994.
Investors on the stock exchange will be pleased to note that the JSE all share index hovered around 5 000 in 1994 and at the time of writing this column was more than 49 000.
Traders will be happy to know that in the first four months of this year the JSE averaged more than 168 000 trades daily.
In 1996 when we moved to electronic trading, we averaged 158 000 trades a month. In fact, we have found that trading volumes increase substantially with each technological advance in the JSE’s trading platforms.
I am, therefore, truly excited to see what our newly launched colocation facility will bring to the market. This is another quantum leap in provision of services to our community, which was launched successfully on May 12.
With all the populist nonsense generated by the election hopefully behind us, I would remind readers that it has always been JSE policy to support moves by the government to create a more business-friendly climate in South Africa.
In the long term, if we wish to grow this country at the rate of which it is capable, South Africa needs policy certainty and a regulatory policy environment that is conducive to sound business decision-making.
I would like to thank my wife Cheryl for her unstinting support during my years in the industry.
After 50 years, the future of the JSE still fascinates me and I look forward to following the progress of a dynamic institution that will continue to play a vital role in the development and prosperity of our country. I leave knowing it is in safe hands.
* Humphrey Borkum is the outgoing chairman of JSE Limited.