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

Financial Mail - Investors Monthly - - Contents -

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

Pic­ture: iSTOCK

Kevin Brady hopes A2X will at­tract se­condary listings


In­cum­bent is be­ing chal­lenged on speed and sim­plic­ity

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