African Rainbow buys 20% stake in planned A2X exchange
• Incumbent welcomes new exchanges, but wants the same set of rules
Patrice Motsepe’s African Rainbow Capital (ARC) is getting behind aspirant stock exchange A2X Markets through the acquisition of a 20% share.
The transaction allowed ARC to increase its share to 25%, conditional upon A2X securing its exchange licence, the companies said on Tuesday.
ARC is a fully black-owned and controlled investment company with stakes in various financial services businesses.
A2X hoped to secure its stock exchange licence in the next month or two, said CEO Kevin Brady. It would be operational by the end of 2017 and was in talks with 10 to 15 “quality issuers”, Brady said.
A2X was targeting the 50 to 65 largest and most liquid stocks on the JSE, to which it would provide a platform for secondary listings.
A2X was actively trying to break the JSE’s “long-standing monopoly” and would introduce primary listings in time, he said.
Competition would improve the liquidity and quality of the market via better price formation, Brady said. He said ARC’s investment imparted a massive vote of confidence in what A2X was trying to do.
Motsepe said: “We are proud to be able to bring broad-based black-controlled capital to an initiative that will bring competition in an industry traditionally dominated by one player.”
“Competition drives market efficiencies and this benefits all users, including individual investors and pensioners.”
ARC’s “industry relationships” would unlock significant opportunities for A2X, said ARC co-CEO and former Sanlam chief Johan van der Merwe. “We are excited to play a role in building an alternative stock exchange in SA with strong BEE [black economic empowerment] credentials.”
A2X will become the third new stock exchange to launch in 2017 in 80 years.
The JSE Limited, the operator of the largest stock exchange in Africa, has welcomed competition in the form of new stock exchange licences in SA but stressed the need to retain the country’s regulatory standing.
Writing in the just released annual report, JSE chairwoman Nonkululeko Nyembezi-Heita said the competitive landscape had changed with the granting of licences to newly established exchanges ZARX and 4AX.
Both new stock exchanges are still at a fledgling stage and are unlikely to rattle the JSE’s business model in the short term. But some market commentators have highlighted the new exchanges’ potential as market disrupters in the longer term. The ZARX opened for trading recently but has only two listings in Senwes and its holding company, Senwesbel.
The 4AX, which is expected to start trading in April, has boasted of six potential listings.
Nyembezi-Heita said the JSE was well down the road in its competitive responses. “The JSE has a long track record of competing with exchanges across the globe and looks forward to competition in SA.”
She said that although the JSE had expressed concerns about the complexity and fragmentation that multiple exchanges could bring to the domestic capital market, competition was welcome as long as the playing fields were level.
JSE CEO Nicky Newton-King stressed that SA was respected for its high regulatory standards in financial markets.
“We believe that this plays a significant role in attracting investment. As more exchange licences are granted, we believe that it is critical to retain the country’s regulatory standing in order to ensure market quality, to manage risk and to ensure investor protection; so all competitors should participate on a level playing field, bound by the same set of rules.”
Newton-King said this was how regulators around the world had approached the introduction of more than one exchange or financial market infrastructure provider.
“We look forward to our regulator also taking the lead in the conversation on the public policy considerations arising from multiple financial market operators.”
She intimated the JSE had attributes not prevalent in newer bourses. “What sets the JSE apart … is that we offer investors access to a broad range of markets and to many related service offerings: the equity market, the debt or bond market and the derivatives markets.”
The JSE provided these services using robust technology and world-recognised regulatory standards to create market places that clients could trust.
Despite a tough economic climate and new competition, the JSE was clear about its priorities in 2017 and the issues that needed to be tackled to grow the business sustainably, NewtonKing said. “The JSE is a largely fixed-cost business. Therefore, we will maintain our focus on costs, while making the necessary capital investments in areas that will enhance the group’s sustainability and diversify revenue.”