S. Africa’s JSE Seeking Dollar Collateral to Attract Investment

The JSE Ltd., which runs South Africa’s stock and bond exchanges, is in talks with the central bank to allow foreign-currency collateral for locally traded derivatives in a bid to attract more offshore investors.

Exchange-control regulations, administered by the South African Reserve Bank, currently don’t allow investors to put up collateral in a foreign currency. Allowing dollar backing may increase foreign participation in the exchange by reducing investors’ exposure to moves in the rand, the second-most volatile major currency after Japan’s yen, according to data compiled by Bloomberg.

“We are working closely with the Reserve Bank on the issue of dollar collateral,” Leila Fourie, director for post-trade services at the JSE, said at an investor conference in Durban, South Africa. “It will certainly be very positive for the exchange.”

Africa’s biggest stock exchange, which has a capitalization of $1 trillion, is looking for growth opportunities outside its home market. The bourse already allows foreign companies to list their shares locally and may also soon permit listings of foreign debt instruments, said Sunette Mulder, a senior policy adviser for the Association for Savings and Investment South Africa, an industry group.

Level Field

The central bank wants to reduce the effect of exchange-control regulations on investors and would consider allowing dollar collateral, though it wouldn’t rush into changes without carefully considering the consequences, said Raymond Paola, assistant general manager at the Reserve Bank.

“Since 2004 we’ve gradually gone ahead and relaxed exchange controls,” he said. “We are trying to create certainty and a platform for the industry to compete on a level playing field. What we don’t want to do is to make ad-hoc decisions.”

JSE’s shares rose 0.3 percent to 72.19 rand by 2:26 p.m. in Johannesburg. It’s fallen 7.7 percent this year, a steeper decline than the 0.7 percent drop in the overall index. The rand depreciated less than 0.1 percent to 8.9316 per dollar.

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