(Bloomberg) -- Johannesburg’s stock exchange said it is proposing tightening listing rules after South African financial markets were “shaken by a range of corporate scandals, rumors and innuendo” over the past year.

The bourse published a consultation paper Wednesday, saying recent events showed a need for it to review its responsibilities and strengthen aspects of regulation. Recommendations range from boosting racial and gender diversity on boards, to doubling the notice period before new stocks start trading. It proposes disclosures when directors use shares as collateral and supports plans for information on short-selling transactions to be made public.

Without specifying any events, the exchange said they “have led to questions about how certain alleged activities were able to happen, apparently undetected, whether regulators such as the JSE could have taken action to prevent certain activities and whether those events have highlighted any regulatory provisions that might need to change.”

The JSE’s comments come some nine months after the near-collapse of global retailer Steinhoff International Holdings NV, which lost more than 90 percent of its value when it was engulfed in an accounting scandal in early December. In January, regulators said they were studying sharp drops in stocks including Aspen Pharmacare Holdings Ltd. and Resilient REIT Ltd. amid speculation they were about to be the subject of a negative report by short sellers Viceroy Research.

“We as regulators learn, we learn from mistakes and loopholes people make,” John Burke, director of issuer regulation at bourse operator JSE Ltd., told reporters Wednesday.

The JSE said it’s seeking comment on the proposals and that these can be submitted to Burke until Oct. 22. Here are some of the exchange’s recommendations and comments:

Stronger Listing Regulations

  • The current subscribed capital amount of 500 million rand ($34 million) may need to be increased and issuers may need to have this in place before raising funds through a JSE listing
  • To expand the proportion of shares in listed companies in the hands of general investors, the classification of “public shareholders” could be tightened to exclude anyone closely affiliated with directors and management
  • The JSE is considering doubling the notice period before new listings start trading to 10 days from five to give “time for the listing to be analyzed and absorbed by the market”
  • Requiring the board of listing applicants to make a positive statement that applicants are in good standing with all applicable laws
  • The JSE is considering requiring audit committees and company secretaries to undergo training on their responsibilities under the Companies Act and listing requirements
  • The exchange is considering introducing a shareholders’ vote on corporate governance, where if a report is voted down by more than 25 percent shareholders, the JSE would require “engagement” by companies, as is already the case with remuneration reports
  • After cases where share prices came under pressure from directors using stock as collateral without the market’s knowledge, the JSE is considering requiring an announcement when such arrangements are made

Secondary Listings

  • The JSE is considering being more selective on the jurisdictions it accepts for secondary listings, creating a pre-approved list of foreign exchanges with which it is “comfortable”
  • It’s also considering tighter controls on which exchanges it accepts when companies move their primary listings away from the JSE, accepting only those with equivalent regulations
  • The ability to have a primary listing elsewhere when the JSE accounts for more than 50 percent of the volume and value of stocks traded may be removed

Diversity

  • The JSE is considering requiring that boards have a mandatory policy on diversity and that they publish performance against that on an annual basis; a diversity of views and oversight “becomes critical when a company has dominant and charismatic directors”

Short Selling

  • While short selling plays an important role in price formation, the JSE supports the Financial Sector Conduct Authority’s proposal to require public disclosure of information on short sales; the exchange will comment on the proposals once they are released

(Adds comment by exchange official in fifth paragraph.)

To contact the reporter on this story: Thembisile Dzonzi in Johannesburg at tdzonzi@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, John Viljoen, Jacqueline Mackenzie, Robert Brand

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