May The Markets Be Ever In Your Favour: Is South Africa's Debt Market Becoming More Exclusive?

In 1994, as South Africa transitioned into its new democratic era, the South African Reserve Bank (the “SARB”) issued the Commercial Paper Exemption Notice, 1994 (the “CP Exemption Notice”), a regulatory framework enabling corporates to raise funding from institutional investors without falling foul of the prohibition against conducting "the business of a bank" under the Banks Act. For thirty years, this framework has remained largely unchanged. Recently, however, the Prudential Authority (“PA”) has proposed sweeping amendments that would fundamentally reshape South Africa's debt capital markets. These draft amendments, now in their final consultation phase following a process that commenced in 2018, raise a critical question: do these reforms, despite providing much-needed clarity, risk erecting barriers that effectively shut out the very participants the CP Exemption Notice was originally designed to serve?

Background

The Banks Act, 1990 prohibits any person from conducting the "business of a bank", including accepting deposits unless registered as a bank. To enable corporates to access short-term funding through domestic capital markets without triggering this prohibition, the PA issued the CP Exemption Notice. This framework exempted commercial paper issuance from banking regulations whilst imposing minimum safeguards around denomination thresholds and disclosure, thereby facilitating the development of South Africa's debt capital markets.

International “Best Practice”

In several respects, the 2026 draft amendments align with international commercial paper market conventions, such as the 364-day maturity restriction, the emphasis on operating capital as the permitted use of proceeds, and the distinction between commercial paper and longer-dated debt securities. However, whether such alignment constitutes “best practice” depends on one’s assessment of the goals the regulatory framework should serve.

Regulatory frameworks governing short-term debt markets must balance market efficiency and accessibility against financial stability considerations. The PA’s stated objective of "promoting and enhancing the safety and soundness of the commercial paper market and its market participants" (SARB Position Paper, July 2023) reflects this dual mandate.

From this perspective, features that might appear to restrict market access, such as minimum issuer size requirements or pre-approval mechanisms, may serve legitimate prudential objectives in an emerging market context where investor protection frameworks are less developed than in established financial centres. South Africa’s investor protection frameworks, though generally robust, are nonetheless viewed as less comprehensive than those of top-tier financial centres such as London or New York.

Towards reforms or restriction?

The 2026 draft amendment differs from previous iterations in several material respects. While the PA continues to consult with industry following concerns raised, the draft introduces a comprehensive suite of restrictions that may have exclusionary effects on market participation.

The ZAR12.5 million minimum denomination threshold for primary issuance remains a significant barrier, substantially exceeding comparable thresholds in the EU and UK and potentially discouraging cross-border participation. While the PA justifies this alignment with Directive 8 of 2023's interpretation of retail exposure, the practical effect is to constrain market accessibility considerably.

Similarly, the retention of the ZAR100 million net asset threshold for unlisted companies, with intangible assets and off-balance-sheet liabilities excluded, effectively restricts commercial paper issuance to established, capital-intensive businesses. Smaller enterprises with strong cash flows but limited balance sheet assets face exclusion unless they obtain separate PA authorisation. Combined with elevated minimum denominations, these requirements concentrate market activity among the largest corporate entities and most affluent investors.

The enhanced compliance framework compounds these barriers. Expanded disclosure obligations require placing documents to contain extensive issuer information and material risk factors, whilst continuing obligations mandate audited annual financial statements within six months and ongoing website disclosures. Unlisted issuers must additionally appoint auditors to verify compliance through agreed-upon procedures and obtain prior written approval from the PA before initial issuance. A regulatory checkpoint absent for listed issuances. The lack of prescribed response timelines creates further uncertainty for issuers planning funding activities.

Quarterly reporting requirements apply to all issuers regardless of size, creating compliance infrastructure demands that smaller participants may struggle to maintain. Special purpose institutions face additional procedural complexity for unlisted issuances.

Conclusion

On balance, the proposed amendments will likely produce a more clearly defined commercial paper market operating within tighter parameters. The 364-day maturity restriction returns the instrument to its original purpose as a short-term funding mechanism, while the separate debt securities framework provides an alternative pathway for longer-dated funding needs.

However, the minimum issuer size requirement and pre-approval mechanism may reduce the number of entities able to participate in the market, particularly at the smaller end of the corporate spectrum. The amendments may therefore result in a commercial paper market that is more closely aligned with international practice but less accessible to marginal issuers than the current framework. This trade-off between market discipline and market access represents a policy choice that participants may reasonably evaluate differently.

The extended consultation process spanning from 2018 to the current draft, reflects the PA's engagement with market feedback on successive iterations. This iterative approach suggests a framework refined through dialogue with participants, though the final form will only become clear following Ministerial approval and publication in the Government Gazette.

Ultimately, the amendments appear designed to produce a commercial paper market that is more clearly defined, more closely supervised, and more aligned with international conventions but potentially less accessible to marginal issuers than the framework it replaces. Whether this represents progress depends on the relative weight one assigns to market efficiency versus prudential oversight. Consistent with the PA’s prudential mandate, the focus appears to be on the latter.

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