How will ZAR X, 4AX and A2X Markets differentiate themselves from the JSE?
A big question for investors is how the three stock-exchange newcomers — ZAR X, 4 Africa Exchange (4AX) and A2X Markets (A2X) — intend to differentiate themselves from the incumbent monopoly, the JSE.
SA lags its fellow Brics members Brazil, China, Russia and India in that it does not offer exchanges particularly focused on securities other than equities, such as fixed-interest rate products, currencies, commodities and derivatives.
According to the Bank for International Settlement, while emerging-market stocks tend to be more volatile than those of developed markets — creating an exciting environment for speculators — derivatives trading tends to be far lower than in similarly sized developed markets.
But the three newcomers said their initial priority would be traditional equities trading, with adding other types of securities a long term goal.
ZAR X head of listings Graeme Wellsted said the initial goal is to offer a more affordable equities trading platform than the JSE for companies and investors.
This will entail removing the high financial barriers to entry for small clients, while still accommodating institutional clients and dramatically reducing broker transaction costs.
"Sophisticated instruments that drive speculation and increase the levels of risk in the capital markets like derivatives do not as yet fall within our objectives," Wellsted said.
He said it was important to remember Warren Buffet’s warning that large, complicated derivative positions were potential weapons of mass destruction.
"So, we will operate a cash market only. If an independent central clearing counterparty were to be established, we might reconsider our position. But, even then, we would be prepared to offer derivatives on a limited basis only".
Zar X has two listings so far, Senwes and Senwesbel, which have been trading for almost two months. It anticipates two more listings in the next two months, with additional pipeline in place for the remainder of the year.
4AX, which plans to list its first company in May, will also initially focus on equities. But it has a licence that will enable it to list a range of other asset classes such as debt, special-purpose vehicles and real estate investment trusts.
4AX CEO Fay Mukaddam said SA is a vibrant, growing market with enormous potential for the new exchange to develop and deepen capital markets.
A2X CEO Kevin Brady said there was definitely space for competition in the derivative space. While A2X’s initial focus was purely on equities, after getting them up and running, the exchange will look at other potential opportunities, "one of which may possibly include derivatives", said Brady.