A2X Markets, the alternate exchange that counts African Rainbow Capital and Absa among its shareholders, plans to seek a primary listings licence within the next two years, which will give it time to set up the necessary infrastructure to accommodate such a move.
The Joburg-based alternate exchange, which began trading in October 2017, currently only has an exchange licence for secondary listings of companies and exchange-traded products (ETPs). A2X, which celebrates its fourth birthday in October, says it has provided savings of R400m to the industry in the past 12 months through lower exchange fees and narrower bid-offer spreads on trades.
“We will move into primary listings at some stage — we want to compete on both primary and secondary listings but that’s probably two years away,” A2X CEO Kevin Brady told Business Day. “The next step is primary listings of ETPs with the end goal being primary listings of companies. We have done a lot of groundwork [on obtaining a primary listings licence] but we haven’t submitted an application yet.”
A2X has grown its secondary listings base from just three when it began trading four years ago to 56 securities with a combined market value of about R5-trillion. Among the secondary listings it has attracted are Standard Bank, Naspers, Famous Brands, Capital Appreciation, Prosus, Sun International, Sygnia’s full range of 13 ETFs, EOH, Investec Ltd and Investec plc.
Brady says international experience has shown that it is better to get the secondary listings market right before moving into primary listings. That’s mainly because it’s easier for fledgling exchanges to attract secondary listings of companies already established on other platforms, which means they can generate sufficient trading volumes and the associated fees needed to survive.
“It’s very difficult to start an exchange listing one company at a time and make it pay,” says Brady. “For us it’s about timing, we need to achieve various milestones in the secondary market before we can move into the primary market.”
Among the milestones A2X wants to achieve will be to extend its exchange licence to allow primary listings of ETPs as well as inward listings of offshore companies that have primary listings in foreign jurisdictions that are not currently available to SA investors. At present A2X’s exchange licence allows for inward listings of companies from a number of large international exchanges and A2X has applied to extend this to jurisdictions with the same or similar regulatory equivalence to SA.
“We could potentially bring an inward listing from say, Australia, to SA that would only be available on A2X,” says Brady. “We’ve now amended our licence even further to allow secondary listings from other alternative exchanges such as the Cape Town stock exchange.”
Brady says A2X is working with the Cape Town Stock Exchange, which recently rebranded from 4 Africa Exchange (4AX) to attract some of its primary listings. The Cape Town Stock Exchange is the only exchange in SA other than the JSE that is licensed for primary listings.
Agriculture group TWK, which has a primary listing on the Cape Town Stock Exchange, is expected to seek out a secondary listing on A2X by year-end, says Brady.
Yet despite the number of alternative exchanges that have cropped up in SA in recent years Brady says the JSE still enjoys a “vertically integrated monopoly with high barriers to entry.” He says he’d like to see the Financial Sector Conduct Authority (FSCA) revise the regulatory framework for SA exchanges in order to promote competition in the sector.
For example, in SA an exchange like A2X can only secondary list a company’s shares with its express permission, something not required in Australia, the US or Europe. He also says regulation should be put in place to compel brokers to seek out “best execution” across exchanges, the industry term for executing a trade in a way that achieves the best price for clients.
“We feel the regulator could do more to enable competition,” he says.
Nevertheless, he is optimistic on A2X’s prospects despite fellow alternative exchange ZAR X recently having its licence suspended and the JSE battling a delistings scourge that it has blamed on everything from the weak SA economy to the rise of private equity.
“From an A2X perspective, the pool we play in is still huge even if it’s a slightly shrinking pool,” he says. “We still see a lot of opportunity to make money given our lower cost base and the strength of our technology.”
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