The Impact of Technological Improvements on Developing Financial Markets: The Case of the Johannesburg Stock Exchange

Abstract

Can a significant technological improvement make an economically justifiable contribution to a financial market’s development? The Johannesburg Stock Exchange (JSE) incorporated the SETS system from the London Stock Exchange in 2002. It is certain that SETS is a technologically efficient trading system and it would undoubtedly improve trading in the JSE. We test whether SETS represents a structural break by examining whether there was an increase in the JSE’s liquidity, market efficiency and international integration after the introduction of SETS. We find that, though SETS was certainly a technological improvement which has increased liquidity, it was not a sufficient factor to render it efficient. However, the JSE became more independent after the incorporation of SETS. It now offers better diversification opportunities for international investors.

Keywords: Johannesburg Stock Exchange, market efficiency, market development, structural change

JEL Classification: G14, G15