Shareholders squeezed in the odd-lot vice

As South Africa’s public market faces a steady decline in listed companies and falling public participation, you would imagine that the fair treatment of all shareholders might be a relevant consideration for public market operators.

The wave of odd-lot offers on local markets, both the JSE and the Cape Town Stock Exchange, in recent years has set corporate cost cutting against shareholder inclusion. While some offers have been fair and justified, others warrant much closer scrutiny.

Historically, an odd-lot referred to a shareholding that was not a multiple of the then standard trading unit of 100 shares. Before electronic trading, odd-lot sales incurred higher fees, longer settlement times and limited liquidity. Brokers often charged premiums to handle these trades. Today, digital platforms allow trade in lots of any quantity.

Odd-lots were often inadvertently created as a byproduct of corporate actions such as demergers or unbundlings, where the distribution ratio left smaller shareholders with non-standard holdings. To offer a simple, cost-effective exit, companies would typically offer to facilitate the sale of these shares, without the normal minimum transaction fees.

Modern odd-lot offers are now corporate actions designed to repurchase small holdings – often below 100 shares – regardless of how the odd-lot arose. And there is no cap on the value of the odd-lot – in recent offers, some odd-lots have been tens of thousands of rands in value, such as Cashbuild’s 2023 offer, which repurchased positions worth up to R19,700.

Bear in mind there is no longer any technical or administrative reason for an investor to avoid odd-lots other than minimum trading fees, which make small trades, by value, not number of shares, uneconomic. While previously positioned as helpful exits for shareholders, they are now almost always motivated as internal cost management initiatives by the issuer.

Conventional market wisdom holds that the rationale is sound: servicing many small shareholders creates a disproportionate administrative and cost burden.

Previously, the costs were driven by the printing of annual reports, circulars and notices, and their postage to shareholders. Today, with digital shareholder registers and ubiquitous electronic communication, incremental costs per shareholder are arguably far less.

The absence of financial disclosure around these supposedly motivating cost savings is concerning. These savings are often cited but rarely quantified.

If issuers are charged a fixed cost per shareholder record in the electronic share register, then perhaps it is the pricing structure of digital share registry services that is the problem to be solved, rather than reducing costs through the financial exclusion of small investors.

The risk of alienating small investors

Some odd-lot offers have been handled with care. City Lodge Hotels offered to repurchase holdings under 100 shares in 2023 at a 5% premium to the 30-day volume-weighted average price (VWAP). Shareholders could opt out, and with many positions below R500, this was a fair exit, especially when considering minimum trading fees.

Adcorp Holdings followed suit in 2024 with a similar premium and tax-friendly capital return. Again, opt-outs were allowed, and the offer focused on tiny holdings.

But this has not been the case across the board. Nedbank Group’s 2023 offer repurchased holdings under 100 shares – positions worth about R23,400. Non-response was deemed acceptance. Coronation Fund Managers took a similar approach in 2024, targeting holdings below 500 shares, for about R16,800. Though its offer included a 10% premium, proceeds were taxed as dividends, reducing value to investors. Avoiding minimum trading fees plays little role here.

With EasyEquities fighting hard to attract a new generation of retail investors to the public market and now serving over 1-million South Africans, whose average portfolio size is about R63,000, default repurchases of R20,000+ positions hardly sends the right message.

These offers, though allowed in regulation, risk alienating smaller investors. Regulatory communication via releases on Sens rarely reach all shareholders. If the goal is to clean registers of stale or dormant legacy investors, why include recent on-market buyers? These individuals may be building meaningful – at least to them – long-term positions. If the goal is to reduce costs – perhaps a careful look at shareholder register cost structures and the related pricing regime would be a better place to start. The transition to digital has transformed the share registry industry – but the per-shareholder pricing structure remains stubbornly in place.

Transparency, proportionality, respect

As South Africa’s listed universe shrinks, the need for an inclusive public market becomes more urgent. Letting small investors remain – even with modest holdings – supports this broader participation.

Odd-lot offers can still serve a purpose. When focused on genuinely trivial – to the shareholder – holdings and designed with opt-out flexibility and transparency, they are appropriate. Companies should also go beyond the regulatory minimum when communicating the offer too. But there is no doubt that large-scale offers that forcibly repurchase tens of thousands of rands in shares deserve deeper thought.

Negative-response marketing is generally prohibited in South Africa under other circumstances – but is perfectly legal, and even necessary, in the case of odd-lot offers, as these offers often involve thousands of shareholders, some of whom may not even know that they have the investment. A deemed acceptance mechanism ensures an effective offer, particularly when dealing with dormant or uncontactable shareholders. But this should mean that the directors of any issuer should pay very close attention to the fairness and ethics of any odd-lot offer.

Ultimately, attracting investors back to the public market requires more than minimum regulatory compliance. Those who care about the success of South Africa’s public market must support inclusivity not just in principle, but in practice. This means adopting fairer odd-lot offer structures, improving transparency around cost savings, and meaningfully engaging retail shareholders.

Even small holdings have value – not only to the investors who hold them but to the market’s overall credibility. Companies should weigh the true cost of excluding small shareholders against the reputational and systemic impact.

Clear opt-out mechanisms and thoughtful communication should be the norm. Properly designed odd-lot offers can support market efficiency without compromising fairness – but only when implemented with transparency, proportionality and respect for all investors. 

Paul Miller has a long history in capital markets, minerals exploration and mining, and is the MD of consultancy AmaranthCX as well as Decentral Energy. He consults on  renewable energy solutions for commercial and industrial customers, mines and agribusiness.