Finance Minister Pravin Gordhan has called on the World Federation of Exchanges to help African stock exchanges get on their feet.
“Could you, as the World Federation of Exchanges (WFE), consider another chamber for countries still developing their markets and still developing their stock exchanges … to learn from you?” he asked the WFE annual general meeting in Johannesburg on Wednesday.
This would allow the WFE to play an important role in helping small economies to become crucial economies, he said.
The WFE is a trade association of 52 publicly regulated stock, futures, and options exchanges.
Gordhan said South Africa welcomed foreign investment and would like to offer its services as a gateway to the rest of Africa.
Exchanges were important as they had been at the centre of unlocking growth and capital since the first share was traded in Amsterdam 450 years ago.
“Exchanges have also played an important role by pioneering the concept of share ownership,” he said.
Stock exchanges had an important role in creating growth, ensuring its wealth was shared and helping people save.
Ordinary people could participate and grow wealth through pension funds, among others, he said.
Research done by Investment Solutions and Alexander Forbes found that in 2010, 17.6% of the market value of the JSE was held by pension funds.
‘Financial weapons of mass destruction’
Gordhan said the need for regulation of markets had become very important, particularly when it came to derivatives.
A derivative is an asset that derives its value from another asset, and is not regulated.
Quoting United States billionaire Warren Buffet, Gordhan called derivatives “financial weapons of mass destruction”.
When used inappropriately, derivatives have devastating effects, he said.
The derivative markets had been widely blamed for the global financial crisis which began in 2007.
In South Africa, this had led to the loss of a million jobs, lower tax revenue and retrenchments on a massive scale, Gordhan said.
Gordhan said the draft Financial Markets Bill 2011 took the first steps towards ensuring derivative transactions were regulated by ensuring that they were recorded.
“One of our most formidable challenges is to work towards a new financial system where it is the servant of the economy, not the master.”
The Financial Markets Bill, intended to replace the Securities Services Act, aims to strengthen the legislative framework for a sound financial markets industry, to provide financial market stability to industry participants and to protect consumers. — Sapa