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The Tribunal has released the public version of its reasons for its order approving the merger whereby JSE Limited (the JSE), the operator of the Johannesburg Stock Exchange, acquired shares registry firm, Link Market Services South Africa (LMS SA).
 
The public version of the Tribunal’s reasons for approving the merger, with conditions, will be available on the Tribunal’s website.
 
The Tribunal approved the intermediate merger in September 2020, after 12 days of hearing oral evidence from factual and expert witnesses over a virtual platform. The transaction was approved subject to conditions crafted to address any potential merger-related competition-detriment.
 
The Competition Commission (the Commission) had earlier prohibited the merger in November 2019. However, the JSE and LMS SA subsequently approached the Tribunal for a reconsideration of the Commission’s decision. Computershare South Africa, an intervenor in the proceedings, joined the Commission in opposing the merger.
 
Some of the Tribunal’s core reasoning follows:

“The merging parties say that the market is ripe for an increase in competition offered by Link. We are inclined to agree with this. The question is whether Link would be able to compete more intensely with the dominant incumbent, Computershare, if it has the additional resources and brand power of the JSE. This must be balanced against any potential anti-competitive effects resulting from the proposed merger in the TS services market, including it raising barriers to entry and potential effects on small market participants.”

“Specific concerns were raised by the Commission and Computershare about the ability of smaller TS services providers, such as Singular, to compete with Link SA in the TS market post-merger. …  We are concerned about potential increased barriers for small players and future competition in the TS services market. However, we note that small players have entered as ‘niche’ players in the market, and they can, through building relationships and reputation, still expand albeit at a substantially smaller scale than the two leading rivals.”
 
The merger was conditionally approved on 2 September 2020, providing conditions related to preventing bundling and/or tying of JSE’s licensed functions with any of the services offered by LMS SA. The JSE was also prevented from inappropriate interactions with issuers and sponsors when performing any of its regulatory functions, by (i) requiring marketing, promoting or incentivising issuers/sponsors to make use of LMS SA’s products or services; (ii) favouring issuers/sponsors on the basis that they make use of LMS SA’s services; and/or (iii) influencing, requiring or inducing issuers/sponsors to make use of LMS SA’s services.

Furthermore, JSE must ensure that information relating to issuers/sponsors and their transactions and activities, obtained through its regulatory functions, is not directly or indirectly available or made available to LMS SA. JSE is required to publish, on its website and in its JSE Quarterly publication (or any successive publication), the name and contact details of any provider of transfer secretarial services at the request of such a provider. JSE may not use its shareholding in Strate (Pty) Ltd, South Africa’s principal central securities depository, to direct or influence the way in which Strate fulfils its regulatory functions. JSE has also undertaken to, on request, provide its electronic postbox services to any provider of transfer secretarial services, on terms no less favourable than those on which it provides to LMS SA.
 
On balance the Panel was satisfied with the proposed conditions and viewed them as appropriate and sufficient to address any potential competition concerns raised by the merger.
 
Background
 
The JSE is a capital exchange offering multiple platforms for the listing and trading of various securities including shares, bonds and derivatives. The JSE also provides ancillary services such as meeting management services and information services.
 
LMS SA is a share registry, custody and investor service provider that offers services such as (i) transfer secretarial and registry services (ii) custodial, settlement and nominee services (iii) analytics and other support services (including meeting management services) and (iv) stakeholder engagements. Of most relevance to the transaction is its services in (i) and (ii) above.
 

Issued by Competition Tribunal