What the JSE’s Two-Tier Reform means for small caps

In September 2024, the Financial Sector Conduct Authority approved a two-tier reform – the JSE’s split of its Main Board into two segments – Prime and General – with simplified Listings Requirements taking full effect in early 2026.

By January 2026, 31 Main Board companies had migrated to the General Segment, with an estimated 116 of 220 Main Board primary listings eligible to follow.

The reform was designed to stop the bleed. The JSE has lost more than 300 listed companies since 2000, and the most consistently cited cause was that the compliance burden had become disproportionate for smaller companies to carry.

The two-tier structure is the fix. But it comes with trade-offs that every small-cap investor needs to understand before assuming it’s purely good news.

Prime versus General: Three implications of the two-tier reform stand out for investors

First, General Segment companies report less frequently – annual reports only, with no interim results requirement. If you’re tracking a small cap’s progress between annual reports, you’re doing so without formal disclosure.

Second, the removal of fairness opinions for related party transactions shifts minority shareholder protection from independent professional opinion to governance process. That’s a meaningful step down in protection that requires sharper personal scrutiny of any deal involving a related party.

Third, and most importantly, General Segment companies are ineligible for the FTSE/JSE All Share Index, which means most institutional mandates cannot hold them. The institutional re-rating that often drives a small cap’s biggest share price gains is now effectively delayed. A company can improve operationally, grow profits and even become large enough for index inclusion long before many institutional investors are able—or permitted—to own it. That creates a period where the market may not fully recognise improving fundamentals. For patient retail investors, that disconnect could become one of the most interesting hunting grounds on the JSE over the next few years.

The 18-month migration pathway and why the number matters

General → Prime: The Automatic Pathway

Step 1: Company grows into FTSE/JSE All Share Index inclusion based on market cap, free float and liquidity
Step 2: 12 consecutive months of All Share inclusion must elapse before automatic Prime reclassification is triggered
Step 3: A further six-month notice period applies – bringing the total to approximately 18 months from index inclusion to formal Prime status

Note: A company may also voluntarily apply for Prime reclassification at any time, without waiting for All Share inclusion

The reverse is equally deliberate: a Prime company must be outside the All Share for at least 12 months before it can apply to move to General.

The framework is designed for stability – companies can’t game the system by shuttling between tiers to suit short-term convenience.

For investors, the 18-month timeline is where the opportunity begins.

Historically, some of the biggest gains in small-cap investing have come before institutions become meaningful buyers—not after. Once large funds begin accumulating shares, much of the easy money has often already been made.

Under the JSE’s new structure, that process may become even more predictable. A growing General Segment company could spend months—or even years—improving its business while institutional demand remains limited by index rules and investment mandates. If that company ultimately qualifies for the All Share Index, a completely new pool of buyers can emerge later.

In other words, today’s overlooked General Segment company could become tomorrow’s institutional small-cap success story. The challenge is identifying those businesses while they’re still largely flying under the radar.

What to watch for

With only 31 of an estimated 116 eligible companies having migrated, the next wave of General Segment migrations is still forming.
Companies that move are signalling the compliance cost saving outweighs the institutional visibility trade-off…for now. Companies that stay in Prime despite being eligible may be planning capital raises or acquisitions that require Prime Segment credibility. Both signals are useful.
Watch also for how General Segment companies use their new capital allocation freedom – the automatic issuance and repurchase authority is a genuine new tool, and how management uses it will be one of the clearest signals of conviction available to investors who are paying attention.

The biggest winners are unlikely to be every company moving into the General Segment. Many will simply remain small businesses.

The real opportunity lies in identifying the handful that use their lower compliance costs to accelerate growth, strengthen profits and steadily build the market value and liquidity needed to qualify for All Share inclusion.

By the time institutions can begin accumulating those shares in size, much of the market may finally wake up to the story. The investors who benefit most are usually those who recognised the improving business months—or even years—earlier.

That is exactly where focused small-cap research becomes valuable. Rather than buying every cheap-looking share on the JSE, the objective is to identify the few companies with genuine re-rating potential before the wider market notices.

That’s precisely what we spend our time looking for in Red Hot Penny Shares. We don’t simply search for cheap small caps. We look for companies where improving fundamentals, management execution and market positioning could eventually force the rest of the market—including institutional investors—to take notice.

The JSE’s new two-tier market won’t create winners on its own. But it may create one of the best environments in years for informed retail investors to get there first.