Financial Mail - Investors Monthly
New contenders say they offer something different for firms looking to list in SA
The JSE won’t be the only choice for companies looking to list in SA, writes Moyagabo Maake. New contenders say they offer something different
If there is a correlation between the number of exchanges and the number of listed companies, then SA should prepare itself for a listings boom soon, as three upstarts threaten to break down the JSE monopoly.
The Financial Services Board has awarded a licence to one of them, ZAR X, with a number of conditions that must be met by the end of August.
4 Africa Exchange (4AX) and A2X are awaiting their licences after the public comment period on their proposals closed earlier this year.
World Bank data show the US, which has about 22 exchanges registered with the Securities & Exchange Commission, saw healthy listing activity in the four years to 2014, with 198 new stock exchange listings.
SA’s Brics peer India — which has 19 active exchanges — saw 429 listings. But listings fell in countries that chose to merge their major exchanges, having had few exchanges to start with.
Brazil shed 15 listings during the same four-year period, which saw the Brazilian Mercantile & Futures Exchange and the São Paulo Stock Exchange (Bovespa) merging to form BM&F Bovespa.
In Russia, the Moscow Interbank Currency Exchange merged with the Russian Trading System to create the Moscow Exchange. The federation lost 29 listings.
SA itself, with the incumbent JSE, lost 25 listings during the same period, though PwC research shows it accounted for 45% of US$6.1bn in capital raised on African equity markets during the five years to last year.
Issuers raised an average of $77m on the exchange during this period. The year 2014 was the best during the period reviewed, as nine companies raised $742m.
Financial services group Alexander Forbes raised $348m, followed by consumer goods group Rhodes Foods at $100m and the Pivotal Fund at $92m.
“The market is deep and elastic enough,” says 4AX CEO Fay Mukkadam.
“4AX seeks to introduce an innovative market to SA, which will make listing attractive to companies not listed on the incumbent.”
Mukkadam says public comments on her organisation’s application for a licence closed early in March, and it has already
4AX seeks to introduce an innovative market to SA, which will make listing attractive to companies not listed on the incumbent
responded to the FSB on questions raised.
“We are confident that a licence will be awarded imminently,” she says. “We have progressed significantly in commercialising the business to ensure that we go live very soon after issuance.”
But with competitor ZAR X already clinching a licence from the regulator, there are questions about whether ZAR X will enjoy first mover advantage, leaving 4AX and A2X in the dust.
ZAR X is already marketing itself at companies trading over the counter with its restricted market offering, which aims to fill the vacuum created by the outlawing of these platforms by the Financial Markets Act.
It also offers same-day clearing for transactions, while the JSE currently operates with a five-day window. The latter is in the process of moving to a three-day window.
ZAR X says it is partnering with Strate, SA’s sole operational central securities depository.
Granite central securities depository, which clinched a conditional licence for bonds and money market instruments from the FSB last year, says it cannot provide any updates about the launch of its services.
Strate’s partnership with ZAR X has made same-day settlement possible, according to the two companies. ZAR X also says its business approach tackles settlement risk, as transactions are pre-funded.
But ZAR X has a number of conditions to meet before it officially launches in September.
Solly Keetse, head of the department of market abuse at the FSB, says among the conditions ZAR X has to meet before the end of August are getting an auditor approved by the registrar; diluting its current shareholding; appointing chief technology and chief financial officers; and confirming the status of empowerment partner Gulf Star Commerce.
4AX has already cleared the empowerment hurdle, with the Maponya Group, a company founded by well-known businessman Richard Maponya, buying a 15% stake in the business late last year. Its CEO, Chichi Maponya, was installed on the 4AX board.
4AX’s unique selling points are its electronic voting platform and pre-cleared trades.
“This ensures the retail public can truly participate and engage in shareholder decisions,” says Mukkadam.
“All orders will be verified before being matched, cleared and settled, which allows for the possibility that all trades could be settled in real time.”
The rest of its service offering aims to simplify everything the JSE does — listing requirements and operational structures will be streamlined, fees and sponsor structures will be simplified, and so on.
“Given that SA is a developing market, our technology, infrastructure design, regulatory framework and customised listing requirements provide an ideal platform for growing businesses.”
Kevin Brady, who heads A2X, says its application is in “the advanced stage”. Public comments ended in March.
“The FSB is currently compiling all the comments for consideration,” he says.
“We are hopeful of obtaining a conditional licence by mid-year and being operational in the first quarter of 2017.”
He is not worried about ZAR X tapping the market first, as A2X has styled itself on the multilateral trading facility (MTF) model, where shares listed on a host exchange can be traded on alternative venues.
It has licensed its technology from the UK’s Aquis Exchange, an MTF overseen by the UK Financial Conduct Authority which offers trading venues across 13 European markets.
It aims to compete on this technology and on pricing, which it hopes would entice the top 50 to 65 shares on the JSE to seek secondary listings on A2X, Brady says.
“This is the same concept the JSE follows in secondary listing UK companies such as AB InBev, SABMiller, Anglo American and Old Mutual,” says Brady. “A2X will materially reduce the price of executing a transaction — excluding securities transfer tax and settlement costs — by between 30% and 50%, while maintaining high standards of regulation.”
He says international experience has shown the introduction of competition in capital markets has led to lower direct transactions costs, improved market efficiencies and has driven innovation.
This is the same concept the JSE follows in secondary listing UK companies such as AB InBev, SABMiller, Anglo American and Old Mutual