Holders of MTN Zakhele shares will be disappointed to learn that the expiry date of the temporary exemption granted by the Financial Services Board (FSB) will remain March 31.
The application for the exemption to be extended until 2016 – when restrictions on trading in MTN Zakhele would be lifted – was unsuccessful (currently, shares can only be traded among black people, or black-owned companies).
This effectively means that, from April 1, MTN Zakhele will not be able to trade on the empowerment scheme’s over-the-counter (OTC) platform which, until now, has been allowed operate as an exchange, exempt from the rules governing exchanges in the Financial Markets Act (FMA).
The FSB last year issued a directive which, among other things, sought to enforce the legal treatment of exchanges – which bring together, and matches bids and offers for securities of multiple buyers and sellers – specifically in contrast to that of OTC markets, which are ‘best described as a decentralised market where market participants trade through bilateral negotiations, in shares and other securities that are not listed on an exchange’.
The directive refers to a number of issuers, like MTN Zakhele, that currently provide infrastructures confirming to the definition of an exchange, which can no longer be allowed to operate ‘illegaly’.
Now MTN Zakhele, which holds 4% of MTN, will either have to acquire a stock exchange licence or list on the Johannesburg Stock Exchange (JSE) before its share-trading platform can operate legally.
Otherwise it will have to cease trading altogether, or only as an OTC market. The implications of the latter are discussed below.
“We first received this exemption in 2013 before our November launch, whereby the FSB had undertaken to clarify its rules and regulations regarding OTC trading platforms,” said Sydney Mhlarhi, MTN Zakhele’s trade platform manager.
“During that period, the FSB granted us a temporary exemption with no expiry date. It subsequently instructed us to apply once again last year and we were officially granted a six-month exemption, which expires in March.”
Regarding the way forward, Mhlarhi said the company had begun discussions with the JSE to list the company for the remaining period of schemes, but this was unlikely to be done before the end of March as it depended, among other things, on certain changes being made to stock exchange’s listing regulations.
In the interim, trading will be suspended.
For now shareholders have been warned to exercise caution in dealing with MTN Zakhele shares until a further announcement is made.
Shareholders will still be able to trade in MTN Zakhele shares after March 31, but this will only be under the strict definition of OTC transactions, in that sales can only be made bilaterally.
“You can still sell your shares to anyone who is qualified to buy them. But what you will not be able to do is go into the trading platform and anonymously buy 1 000 shares, for instance” said Mhlarhi.
Because the trading mechanism will have been removed from the process, sellers and buyers will be required to find each other, and complete the transaction manually.
“The buyer will have to be approved, if they are not already registered as a buyer. And the seller will have to submit their documentation for change of ownership, and will be subject to pay the necessary taxes, like the securities transfer tax, which had previously been done automatically.”
No break for shareholders
MTN Zakhele was set up as a vehicle for previously disadvantaged South Africans to invest in the MTN Group and, since they were launched in 2013, 9.2 million shares valued at R921 million have changed hands. In that period, the value of Zakhele shares has fluctuated between lows of R75 and R144, and the share price currently sits around R105.
However, all its glaring success has only created headaches for shareholders, with the trading platform marred by technical faults within the system that, at times, prevented shareholders from trading for months on end.
Now, it seems, there will be an even longer period before trading resumes.