A2X wants a greater share of trading activity
Low-cost exchange is building trust with firms so that it can eventually do primary listings as well
A2X, the low-cost exchange that has managed to attract big names such as Naspers, Standard Bank and Sanlam, is upping the ante to capture more trading activity in SA.
This comes at a time when SA’s main trading platform, the JSE, is already battling with declining trades as foreign investors sell off SA stocks. In the first six months of 2019, the JSE recorded an 11% decline in value of trades and more than R30bn in divestment by foreign investors.
A2X CEO Kevin Brady told Business Day that the exchange, which is partly owned by Patrice Motsepe’s African Rainbow Capital, is capturing “a healthy share” of trading activity of the companies listed on both the JSE and A2X. For instance, on October 16, it captured 2.4% of all Naspers trade.
A2X is the only one of the four new exchanges that has achieved this level of trading activity. The other three; 4AX, ZAR X and Equity Express Securities Exchange, have no more than five stocks listed on each of them.
Brady said while A2X is not competing with the JSE for listings, it is using its secondary listing licence to build trust with companies so that it can eventually do primary listings as well. As it stands, A2X can only list companies that are already on the JSE and has 33 companies, with a combined market capitalisation of R2-trillion.
“The end goal is to offer primary listings. We just need to get there in steps,” said Brady. “You need to create trust, you need to create a business and demonstrate that it works. You can do that in the secondary market. As you develop and people see the benefit, you can then look at growing into other areas.”
The more immediate area A2X will be expanding to is secondary listing international companies that are not yet listed on the JSE. Brady said this should happen early in 2020.
“It's been a thorough and long process to amend our licence for inward listings but we are at the tail-end of it. We hope to be in a position early next year to announce the amendments,” he said.
A2X has been working on getting this approval since 2018. By listing more international companies, the stock exchange is hoping to attract a broader range of investors, including the short-end of the market.
But such investors want a combination of both low trading costs and a bigger universe of shares to choose from. For now A2X, whose end-to-end transacting fees are 50% lower than the JSE’s, has the cost advantage but with only 33 companies, its offering pales in comparison to the 356 companies listed on the JSE main board. Attracting more local listing and international secondary listings is aimed at solving this.
He said attracting high-frequency traders has become a priority for stock exchanges, especially in a low-growth environment where long-term investments are not as forthcoming as they used to be.
“The short-end of the market [people who trade shares frequently] is really growing. In the US it is estimated to make about 60%. It’s not the same level in SA but when I pitch to these guys they say if you reduce the cost, we’ll do more down there as well,” said Brady.
Clarification: November 26 2019
The article has been updated to clarify that A2X wants to target a broad range of investors, including high-frequency traders but not necessarily speculative traders.