Leading alternative stock exchange A2X Markets has grown the number of securities listed on its platform by 55% this year alone.
This as it has grown its trade value 40-fold from just R657 million in 2017 to more than R26 billion in its fifth year of operation, despite the many industry regulatory and infrastructural challenges that exist for smaller incumbents.
A2X said in a media release yesterday that the potential savings it made available to the financial market to be in the region of R500 million per year.
This was driven by cost-effective trading fees and the ability to capture price improvement, as a result of the buying and selling of shares at a better price, when brokers transact.
“The current savings amount of R500 million is set to increase significantly to potentially R1.5 billion as more public companies decide to secondary list on A2X,” it stated.
The original bourse - the JSE - has been given a run for its money by new industry participants, such as the Cape Town Stock Exchange (CSE) and ZARX.
Last month retailer Pick n Pay Stores announced its listing in A2X becoming the 88th security available on the bourse.
“This brings the combined market cap of all securities listed on A2X to almost R4.8 trillion and ranks it as the second largest exchange in Africa by this measure,” the company said in a media statement at the time.
A2X has 17 Top40 constituents listed, such as Remgro, Nedbank, AngloGold Ashanti, Impala Platinum and Discovery.
Seven property companies are listed representing more than 50% of the property sector as measured by market capitalisation.
Property firm Attacq has announced that they too will make their shares available for trade on A2X next Wednesday, bringing the total of real estate firms on the alternative bourse to eight.
In addition to the many public companies that are secondary listed on A2X, there is also a growing number of exchange-traded funds (ETFs) listed on A2X as well.
Local ETF issuers, including 1nvest, Absa and Sygnia, have opted to secondary list some 34 of their ETFs on A2X because of the benefits it brings for their investors. This represents more than 50% of the local ETF markets as measured by market cap.
Meanwhile, the CSE has a market capitalisation of more than R7bn according to its website, which includes 11 ordinary share listings - the most noteworthy being Assupol - and trades a handful of preference shares valued close to R400m, mainly around infrastructure development. It also has a growing portfolio of listed debt instruments.
However, ZARX’s trading licence remains suspended following a dispute with the majority shareholder in the platform - the Public Investment Corporation (PIC) - an issue that remains unresolved since November last year.
Alternative stock exchanges were introduced to the local market to add choice and cut costs for consumers, but the competition is not eating into the JSE’s lunch just yet.
But tough times have fallen on the JSE, which has seen a wave of delistings, while the smaller exchanges are adding to their arsenal.
Last year 25 companies delisted from the JSE, following 20 delistings in 2020 and 24 delistings in 2019.
Paul Miller, a director at AmaranthCX, told Business Report recently that: “The big mover will be how many of the 14 or so zombie suspended companies will be delisted by the JSE this year too. I stand by my point that we are likely to see one-in-10 local listed companies delisted this year.”
Business Report in July published a Q&A with Miller titled, “One in 10 listed companies anticipated to delist in 2022”.
He explained that the JSE was amid a seven-year losing streak averaging about 25 company delistings a year.
“Having started off 2022 with 332 listed companies, the year is looking especially bad with 18 companies having already delisted, and at least another 14 delisting processes already under way.
“Add to this the 16 or so distressed companies that are suspended from trading and which are almost certain to delist at some point, and the accelerating impact of the delistings crisis can be seen.
“This means that more than one in 10 listed companies can be anticipated to delist in 2022. The denominator is shrinking rapidly and soon 25 delistings a year will be very significant in percentage terms,” he said in the Q&A.
A2X CEO Kevin Brady said in an interview yesterday that its efforts to grow have paid off by passing off great cost savings to the broker fraternity this year.
The Financial Services Conduct Authority (FSCA) and industry players reached a landmark agreement in April to enable brokers to move their trading positions from one exchange to another as they issue a single contract note.
Five of the top six brokers in South Africa, representing approximately 60% of total activity in South Africa are members and trading on A2X.
This solution involved the introduction of a new trade type, called the Matched Principal (MP), which partly enables investors to capture the additional liquidity and price improvement benefits offered on A2X in the pursuit of best execution of their trades.
This means that local brokers can now trade across listing platforms, and opt for the best of execution in any underlying security, rather than have to trade in individual stocks on a single platform.
This has brought the benefit of much efficiency and cost savings for investors.
However, Brady said, for the intended benefits of this solution to be fully realised, further work still needed to be undertaken and divergent interpretations resolved.
“While the MP trade is a step in the right direction, there are still many other infrastructural and regulatory hurdles to overcome. The FSCA, however, is working on a conduct standard for the stock exchange industry that will be released for comment soon, he said, which should assist in levelling the playing field even further, as the interoperability of trading systems remain a challenge.
Brady said even though brokers were now allowed to interchange on post trade level, it remained a cumbersome process.
Local rules stipulated that each exchange appointed its own clearing infrastructure, which was not in line with best global practice, Brady added.
Local brokers, who did not want to reveal their identities, told Business Report that there was no incentive for the JSE to change the status quo, as trading fees of R360m per annum, according to their latest financials, is their third biggest revenue driver for the JSE.
“This is by mandating brokers to use a settlement service that was implemented in the early 1980s, and charging us excessive fees to cover the cost of operating the outdated system, but also the privilege of utilising it,” they stated.
They say the high fees remain a very high barrier of entry for new players, and the fact that the JSE system limits the failure for the market at one single point, adds a significant risk premium to every trade.
Brady said the combined cost savings they delivered to the investment industry was a clear sign that significant opportunities remain to lower the cost in key parts of the investment value chain.
According to A2X’s media statement, the savings A2X brings to the industry is done in two ways. Firstly, it is in the form of direct savings, where A2X’s fees on the end-to- end cost of a trade are about 50% lower than the JSE fees. Secondly, the savings are in the form of indirect savings, whereby an investor can capture price improvement via transacting against the narrower bid/offer spreads quoted on the A2X platform.
Lastly, A2X attracts additional liquidity (the volume of shares available at the best bid and offer price), which is not available on other markets.
“These benefits are then delivered to the ordinary person who is seeking to incrementally build their wealth by way of an investment or pension fund product, said Brady.
“As a significant player in the capital markets, we remain mindful that for most people in South Africa, the only wealth they are likely to accumulate over their lifetimes is in their pension fund. Therefore, as responsible industry players, we must constantly look at how we lower costs to benefit the end client. Small, incremental cost savings over, say, a 30-year period can add a significant boost to people’s life savings.”
BUSINESS REPORT