The effects of a change in exchange fees charged by the JSE on overall market quality in South Africa

Abstract

This study investigates how a change in the fees charged by the JSE onto members to trade stocks affects various metrics of market quality. This topic falls within the broader subject of market microstructure, which considers how frictions in trading can affect both the costs and behaviour of investors. It primarily relates to the issues of market structure and design, along with the issues of price discovery and price formation. Work in related areas has shown that changes in market design can affect market efficiency and integrity. The overall result of this work does seem to partially corroborate with those previous studies in finding there are some identifiable changes in a subset of the metrics of market quality that are examined. The most striking result is a reduction in incidents of market manipulation post the change in exchange fees. Overall instability in bid/ask spreads makes drawing any conclusions around implicit transaction costs difficult. However, there is some evidence of lower transaction costs amongst the largest market capitalisation stocks.