Trading is to start on South Africa’s new ZAR X securities exchange on 3 October. It gained a licence on 2 September and the first listings will be Senwes and Senwes Beleggings, with up to 5 listings planned for first week October.
Another exchange is also being readied, 4AX also called 4 Africa Exchange (see story below).
South Africa’s regulator, the Financial Services Board, announced on 2 September that it had granted licences to ZAR X and 4 Africa Exchange Licences. It said: “The Registrar of Securities Services.. received and considered applications for exchange licences from ZARX (Pty) Ltd (“ZAR X”) and 4 Africa Exchange (Pty) Ltd (“4AX”) and has, in terms of section 9(1) of the Act, granted ZAR X and 4AX exchange licences with conditions after careful consideration of objections received as a result of a notice referred to in section 7(4).”
Initially FSB gave ZARX a conditional licence but in August a court ruled in favour of an application by the JSE, which had argued there was no provision for conditional licensing. JSE CEO Nicky Newton-King said at the time there were concerns about the complexity and the potential for systemic risk that multiple exchanges could bring.
ZAR X has a different level of risk as it requires to be pre-funded, which means that participants must lodge scrip and cash before they trade and settlement is then the same day (T+0). In July the JSE and other market participants moved their market from T+5 settlement to T+3 without any problems. Most institutional investors prefer transferring stocks or money after they have traded, when they know the exact amounts to transfer.
Etienne Nel, CEO of ZAR X, said: “We need to create a level of co-operation within the market space to make it as simple as possible for all participants to coexist”.
Speaking to Business Day TV, he said: “..we are very happy, obviously, delighted since it’s been a long time coming. To give you some context around the conditions, it’s obviously what we applied for. We initially said we were not going to be offering derivatives to the market and obviously as a result one of the conditions is we may not offer derivative trades on our market. Similarly, we cannot offer shares already listed on another exchange, but that was never in our application so we are obviously delighted with the licence that we finally got.”
Nel said in September they were busy getting brokers on board and putting investors through necessary screening and checks of the Financial Intelligence Centre Act (38 of 2001 “FICA”)
Nel says ZAR X has less onerous rules on admitting companies for trading (listing requirements): “In our approach to listings.. we will have a conversation with the issuer and we are taking what is called a principles-based approach to listing rather than rules-based. Now what that achieves is if we get the slightest inclination that something is awry within a company we would actually rather walk away rather than doing the listing.. A rules-based environment .. becomes a tick-box exercise and in that environment you would end up with a situation where people end up finding loopholes, which a principles-based approach does not allow for”.
It breaks over 100 years of monopoly Africa by the Johannesburg Stock Exchange, as the JSE was founded in 1887 but there were several stock exchanges around during the first South African gold rush. Speaking after the licence was issued, 4AX CEO Fay Mukaddam said in a press release: “We are delighted to have secured our licence. South Africa is a vibrant, growing market with enormous potential and we are confident that there’s a strong appetite for an additional licensed exchange to further develop and deepen the capital markets in the country.. 4AX can stand as a vehicle for diversity, which in turn, will drive real economic inclusion”. It will be an “empowered exchange” and will aim at retail investors but also attract institutional trading.
Both ZARX and 4AX will use Strate as their central securities depository (CSD).