Self-regulation of securities markets : the legal status of rules and the mechanisms of enforcement

LL.M. (Commercial Law)Against the background of the revision that is currently under way in respect of South African securities law, the purpose of this dissertation is to explore the following aspects pertaining to the JSE Limited Listings Requirements: • The legal nature of the JSE Limited Listings Requirements. The law in South Africa appears to be settled that they constitute a contract between the listed entity and the exchange, but with certain public law implications in the context of judicial review. • The consequences that follow from classifying the JSE Limited Listings Requirements’ legal effect and nature. An aspect which will be explored in this regard is the validity of transactions or contracts that are in contravention of the JSE Limited Listings Requirements. It is suggested that, based on common law principles, such transactions will not be void by the mere fact of such contravention. • Standing and enforcement in respect of the JSE Limited Listings Requirements. Who is entitled to bring an action to enforce the JSE Limited Listings Requirements (for instance, to launch a court application requesting an interdict against conduct that contravenes such rules)? Are investors or other members of the public entitled to do so? Are there civil actions available to investors to sue issuer companies and others for losses sustained as a result of breaching the JSE Limited Listings Requirements? This discussion forms the primary focus of this dissertation. In South Africa, these matters are not dealt with statutorily and therefore it is suggested that at present the ordinary common law principles of delict and contract would have to be applied. • Whether the Financial Markets Bill proposes to change or add anything with regard to the current position in South African law in relation to private actionability and effects on contravening transactions. In its form as at the date of this dissertation, the bill does not address these issues. This dissertation contains a comparison with the position in Australia, the United Kingdom and the United States of America. In all the aforesaid jurisdictions the listing rules of a securities exchange are essentially in the nature of a contract. In Australia, however, the listing rules have such extensive legislative backing (in comparison to the other countries) that the aforegoing statement may be somewhat oversimplifying the position in that jurisdiction. In Australia, the relevant securities legislation provides statutory backing to the listing rules such that a breach of the listing rules is, indirectly, a breach of statute. This is coupled with numerous instances of specific statutory civil liability for breaches of the listing rules of the Australian Securities Exchange. Locus standi is conferred on any “aggrieved person” to bring an action to enforce the listing rules – a position unique in its extensiveness. There is also express provision in the relevant legislation for the consequences and implications for transactions that contravene the listing rules. In this regard the position is that no transaction is void merely by reason of such breach, but regulations made under the relevant statute may provide otherwise in respect of specific rules. In the United Kingdom the relevant legislation provides for civil liability in the case of breaches of certain rules which are administered by the Financial Services Authority (the listing rules of an exchange are administered by the said authority), but the listing rules are excluded from the civil liability provisions. This has been interpreted in a recent case in that jurisdiction as an indication that the legislature’s intention is that there is no private action available to investors for breaches of the listing rules, at least not in terms of statute. There is also express provision in the relevant legislation for the consequences and implications for transactions that contravene the listing rules, the position being that such transactions are not void by that mere fact. In the United States there is no express statutory provision for civil liability. The law in this regard has developed extensively through the cases there since the 1940s. Initially the courts were quite liberal in allowing private causes of action, adopting the approach that if a listing rule was established for the purpose and intention of protecting investors then it follows that there is a private cause of action available to investors for breaches of that rule. However, from the 1970s onwards the courts started adopting a more conservative approach, pursuant to fears around the “floodgates” being opened. Currently the (conservative) test in the United States is whether, having regard to the specific listing rule and its place in the regulatory environment, it is clearly the intention of the legislature that there is a private cause of action available. As with Australia and the United Kingdom, there is express statutory provision for the consequences and implications for contravening transactions. The provision states that such transactions are void as against the innocent party. This has been interpreted by the courts as meaning that such transactions are unenforceable by the guilty party but are not void ab initio. It is concluded and recommended in this dissertation that, as there has not been any substantial judicial development in this field as yet in South Africa, greater statutory regulation is perhaps desirable. This may promote certainty and accessibility in relation to South African securities law