Listen here.In this interview with Chris Steyn, Donald MacKay, the CEO of XA Global Trade Advisors, describes how anti-competitive behaviour is rewarded when investigations drag on. He was speaking out amid a long wait to find out whether the Johannesburg Stock Exchange (JSE) will be hit with a penalty of ten percent of its annual income following a complaint by a secondary stock exchange against the JSE for anti-competitive behaviour. MacKay predicted that should the JSE lose at the tribunal, “it will force a fundamental change in how stock exchanges operate” in South Africa. As to whether the tribunal would hand down specific directives in addition to the possible penalty, MacKays says: “Well, we don't know that. This is why the tribunal has to wrap this up and take a decision now, but it would be implied in all of this that if you're guilty of anti-competitive behaviour, you can't buy your way out of that by paying a fine. You have to stop the anti-competitive behaviour that started all of this in the first place.” Meanwhile, “many” alternative exchanges have “not even survived” while others are “on the verge of closing down”. MacKay adds that the problem has become “severe”. The JSE has categorically denied all the allegations..Edited transcript of the interview.Chris Steyn (00:01.138) It has been a long wait to find out whether the Johannesburg Stock Exchange will be hit with a penalty of ten percent of its annual income. With me is Donald MacKay, the CEO of XA Global Trade Advisors. Welcome, Donald. Please recap for our viewers why the JSE was referred by the Competition Commission to the Competition Tribunal, please.Donald MacKay (00:18.445) Morning Chris.Donald MacKay (00:31.298) Yeah, so a number of years ago, a secondary stock exchange called A2X lodged a complaint against the JSE for anti-competitive behaviour with the Competition Commission. That investigation unfolded over a number of years. And around a year ago, October last year, that investigation was referred to the tribunal with the recommendation that the JSE be fined for anti-competitive behaviour. So that is set at the tribunal now for a year while we wait to see what will happen there. Yeah, so it's been a while.Chris Steyn (01:12.81) Why would it take that long?Donald MacKay (01:16.952) Well, that's a difficult question to answer. I don't know. There has been a trend at the Competition Commission of investigations taking longer than they should. This becomes most evident with things like mergers, where it's generally well known that they take too long to decide. But even on anti-competitive behaviour, we've got many instances now where cases are just taking an excessive amount of time. And in that period, of course, the consumer is typically being harmed through the anti-competitive behaviour. So speed, without of course compromising the integrity of the case, becomes important.Chris Steyn (02:00.284) You are also unhappy with the conduct of the JSE while it is waiting.Donald MacKay (02:05.376) Yeah, I mean, without getting into the technicalities of the investigation, there's more than prima facie evidence of some poor behaviour. And these are not my words. This is coming straight out of the Competition Commission. So they clearly have found a case.Now, what has happened peculiarly is the JSE has notified investors, they've put out a SENS announcement and they've said, this has transpired. But they've then said that we don't really consider the probability of anything ever happening here to be particularly significant.And so when we have a look at the JSE's financial statements, my expectation would be that we would see a comment in the financials. Now, I'm not saying they should raise a liability or even a contingent liability because it could be too early for that. I'm not a chartered accountant, so I certainly don't want to express an opinion on the legal requirements for disclosure.But it would be fair to say that the JSE is meant to be, if you like, the bastion of corporate governance in South Africa. And these disclosures matter because a person coming along, whether they be a large investor like a pension fund, or just a small retail investor, it should be easy for them to understand what that potential exposure is. Because you may choose to sell your shares or not buy a share or look at the price and say it doesn't fairly reflect this information. And so, it does concern me that the disclosure is also not accompanying what appears to be a serious matter.Chris Steyn (04:02.57) Does the JSE have an obligation beyond it being public knowledge?Donald MacKay (04:07.372) Well, there are two things here. Legally, I've spoken to some friends who actually are accountants, who've said that legally they probably don't have to put this into their financials. But I would look at it and say that the JSE's own documentation states things like when in doubt, always disclose.And you can understand why that principle is so incredibly important because you always want your potential investor or the company who might be selling the shares to have as much information as possible. And yeah, particularly with retail investors, which may be less well informed than a large pension fund, for example, this data does become very important.Chris Steyn (04:59.454) What would the ten percent amount to were the administrative penalty to be handed down?Donald MacKay (05:05.846) Yeah, so to be clear, it could be a lesser amount, but the 10% amount would be about R314 million.Chris Steyn (05:15.358) Well that's not a lot of money really for the JSE, is it? What will it change then?Donald MacKay (05:21.868) Well, it changes a number of things. So remember, the fine is just but one part of this. Should the JSE lose at the tribunal, it will force a fundamental change in how stock exchanges operate in South Africa. So yes, in the JSE's life, we could look at it and say, well, it's about 10% of turnover, although around a third of net profit. We can say, well, that's not that big an amount of money, but we also have to think that the behaviour has to alter. So it would make it much easier for other exchanges to compete and that will have long-term impacts on the JSE's whole business model. So it certainly goes beyond just the immediate fine.Chris Steyn (06:15.37) So would the tribunal then hand down directives as well, in addition to the penalty?Donald MacKay (06:21.442) Well, we don't know that. What we do know at the moment, and this is why the tribunal has to wrap this up and take a decision now, but it would be implied in all of this that if you're guilty of anti-competitive behaviour, you can't buy your way out of that by paying a fine. You have to stop the anti-competitive behaviour that started all of this in the first place.Chris Steyn (06:46.952) If there are no specific directives handed down, would it then just be up to the JSE to change its conduct?Donald MacKay (07:04.386) No, no. So I would assume there would be. I don't know precisely what the content of that would be, because the tribunal would have to put that out. But one must assume here that the JSE would be compelled to alter their behaviour.Now, of course, it's also possible that there is a settlement beforehand. You know, we don't know. But we do know, as it stands, at least, that there does appear to be a non-trivial risk here.Chris Steyn (07:35.412) The JSE has categorically denied all the allegations and said that it has cooperated fully with the investigation. How do you respond to that?Donald MacKay (07:53.208) Yes. Well, that is good that they've cooperated, but that's not what the competition commission found. So, you know, I've yet to find anyone who goes into a proceeding like this just straight out admitting guilt. And I certainly am not pointing a finger at the JSE and saying you are guilty or not. I'm saying the competition commission found you guilty. So it's not me as a private citizen who has identified that.Chris Steyn (08:24.668) Mm. Do you think other stock exchanges could come forward with complaints?Donald MacKay (08:32.174) Yeah, well, the problem is that many of them have just not even survived. So we still have A2X around, but some of the other exchanges just are either not here or on the verge of closing down. So the problem becomes severe.Now, again, I don't want to say, because I have no evidence of this, that it's because of the anti-competitive behaviour that the other exchanges have struggled. But yeah, I mean, the challenge when you've been a monopoly for so long is it becomes very easy to just keep doing things the way you always have. And because the JSE is in an incredibly unusual position of both being a participant in its own market and also regulating itself in that market, one can quickly see there's a kind of built in conflict of interest. Now, I don't think that was intentional because the JSE was the only stock exchange for 100 years in South Africa. But the world has now changed and we have to adapt to it.Chris Steyn (09:43.082) Thank you. That was Donald MacKay, the CEO of XA Global Trade Advisors, speaking to BizNews. I'm Chris Steyn.