New over-the-counter exchange on cards

A NEW stock exchange is in the offing to bring over-the-counter trading that has been flagged as illegal into the regulatory net.

Agricultural firm NWK, whose shares trade over the counter, and advisory company Bravura are part of the consortium planning to set up the 4 Africa Exchange and sell a 30% stake to black economic empowerment players.

The aspirant exchange operators have been in talks with the Financial Services Board (FSB) and plan to apply for a licence in the next two weeks. The move is aimed at catering for over-the-counter traded companies, such as black economic empowerment schemes and agriculture co-operatives, that were declared to be operating illegal exchanges by the FSB.

The FSB’s intention was to protect investors as many companies (also known as issuers) trading their shares over the counter lack adequate controls.

Stephen van der Walt, head of corporate finance at Bravura and spokesman for 4 Africa Exchange, said the consortium had so far invested R35m earmarked for start-up costs.

The other companies involved include Trifecta Capital, which offers shareholder administration; Intercontinental Trust, a financial and fiduciary services provider; and Global Environment Markets (GEM), a developer of exchange trading platforms.

“At least eight issuers have indicated interest and they are mostly in the agricultural community,” Mr van der Walt said. “In that community share trading, just like with BEE (black economic empowerment), is difficult.

“The next phase (after the application) is to find additional shareholders. We will engage with BEE participants so that we have a fully empowered exchange; R20mR30m will be raised from BEE partners.”

Mr van der Walt said Bravura, NWK and GEMS owned 20% each, while the other companies in the consortium owned 40%. Those stakes would be diluted to allow BEE partners to take a 30% stake.

He said they had been talking to the FSB for eight months.

It would take up to 180 days for the application to be processed.

Solly Keetse, head of the FSB’s directorate of market abuse, confirmed the regulator had been in talks with the group.

After a directive last year warning companies trading over the counter that they were operating illegal exchanges, the FSB gave exemptions so alternative solutions could be found. Those exemptions are now expiring, some as soon as next month. NWK deputy chairman Lemmer Vermooten said about 6,000 of its shareholders were affected. Without an over-thecounter market, it was difficult to determine prices if farmers wanted to sell shares, he said.

Noah Greenhill, a former GM at the JSE, said the move was welcome but there was a lot of work for 4 Africa to do. The JSE was a big brand and the aspirant exchange operators needed to offer something compelling.