RYK VAN NIEKERK: A2X is one of a number of alternative exchanges in South Africa. It opened its doorways in October 2017 and affords a platform to JSE-listed firms for secondary listings. Such an inventory permits buyers to commerce within the shares of JSE-listed firms at considerably lowered charges. A2X began with three listings again in 2017, and just about precisely 5 years later, there are 53 firms and 35 exchange-traded merchandise listed on the trade, with a mixed market cap of round R5 trillion. These listings embody heavyweights reminiscent of Naspers, Prosus, Sasol, Sanlam, Standard Bank, Exxaro, Discovery, Investec, Nedbank and Remgro. All in all, 17 of the Top 40 firms on the JSE are listed on A2X.
Kevin Brady is the CEO and one of the founders of A2X, and he’s on the road. Kevin, thanks a lot for becoming a member of me. A2X can have 5 candles on its birthday cake on October 5. There are at the moment 88 listings on the bourse. How does that evaluate together with your authentic marketing strategy?
KEVIN BRADY: First, thanks, Ryk, for having me on the present and sure, we’re very excited to be turning 5 this week. And sure, clearly we’re very proud of the progress from having three listed securities to now having 88. There’s little question that it was notably tough within the earlier days. I feel there was so much of training [needed]. I assume you needed to construct belief and understanding round the advantages of a secondary itemizing. But there’s little question that we’re previous the purpose of no return now and we’re truly discovering it simpler and we’ve a really wholesome pipeline. So I feel that may proceed to develop.
It’s most likely value mentioning [that] one of the thrilling developments within the final 12 months is we’ve additionally been working with the Cape Town Stock Exchange, and included in that 88 we’ve got two firms which have a major itemizing on the Cape Town Stock Exchange, additionally with a secondary itemizing on A2X.
RYK VAN NIEKERK: How precisely does it work, particularly from an investor’s perspective? Put in another way, how totally different is it for an investor to spend money on a share via A2X than via the JSE?
KEVIN BRADY: Look, actually it’s your dealer’s accountability to get the absolute best end result for the shopper. They usually, in worldwide phrases, consult with it as ‘best execution’. So you go to your dealer and also you say, I wish to purchase 1 000 Sasol shares. What’s vital is that your dealer is trying each on the JSE and at A2X, they usually’re shopping for [the shares] at the absolute best worth. I assume it’s akin to you’ve received to fly to Cape Town, and there are two planes flying at precisely the identical time. One is at a greater worth than the opposite. Why wouldn’t you think about it? So it’s your dealer’s accountability to look throughout the 2 exchanges and ensure they get you the absolute best deal. It might find yourself [with] shopping for 600 on one trade and 400 on the opposite – it doesn’t matter. You’ve received to get that 1 000 shares at the absolute best worth.
RYK VAN NIEKERK: Why are there totally different costs on the 2 exchanges – since you are shopping for precisely the identical share?
KEVIN BRADY: The costs can typically be barely totally different, however in a constructive method. So what we’ve got discovered, and that is completely in line with the worldwide expertise, is that once you cut back friction prices – these are actually the trade charges charged to brokers to purchase and promote shares in your market – when these come down, what occurs is you begin getting what they consult with as a ‘better quality market’. What occurs is that your unfold begins to slender and your liquidity begins to extend.
The instance I typically give is you’re travelling offshore, you’ve received to purchase £1 000 to go to London, [and] there’s just one financial institution on the town. They quote you R20/pound to R20.50/pound. A brand new financial institution opens up, they’re digital, they’ve decrease overhead prices, they usually might quote you R20.10 to R20.40. So why wouldn’t you purchase each pound at R20.40 quite than R20.50 as a result of that 10 cents stays in your pocket?
It’s completely the identical on exchanges. If you should buy and promote one thing one cent higher right here and one cent higher there, these numbers add up into correct numbers.
To provide you with a way, in the event you might save one cent each time you purchase and promote a share, the financial savings could be upwards of R1 billion a 12 months for the trade simply on the one cent saving. Then you’ve additionally received value financial savings of R500-odd million. So these add as much as R1.7 billion, in order that they’re correct numbers.
RYK VAN NIEKERK: How less expensive is it to purchase a share on A2X, versus the JSE?
KEVIN BRADY: The trade charges, that are usually sort of sunk into the price of the brokerage a person would pay, are round simply over half or 50% cheaper than that of the JSE. When you go to transact, there are transaction charges, there are clearing charges, there are post-trade charges, there are real-time information charges. If you add all these up, the end-to-end value of the commerce on A2X is about 50%, 55% cheaper from an exchange-perspective value.
But then what occurs, in the event you’re shopping for a share that’s value R10 and you should buy it one cent cheaper, say at R9.99, that one cent truly displays 10 foundation factors. Now within the institutional world, individuals pay three to eight foundation factors, so they’re saving extra by one cent than they might of their charges.
Obviously for retail shoppers it’s a bit greater. They typically pay 20/30 foundation factors, however a 10-basis-point saving remains to be materials. So that’s why the worth enchancment may be very, essential.
RYK VAN NIEKERK: What is the break up between your retail buyers versus institutional buyers?
KEVIN BRADY: Look, we’re predominantly institutional, or wholesale as we wish to refer [to] it. Really it’s simply the best way shoppers are arrange. Institutional shoppers all the time are inclined to have an own-name custody account, and so the best way they transact and settle simply makes it simpler to entry totally different exchanges. But I’d say most likely 98% of it’s institutional. A small half is retail. It actually is determined by the construction the retail shopper is shopping for via. If they’re shopping for via [someone] like an middleman, that middleman might commerce via a dealer, after which that’s tremendous. So it’s fairly advanced within the again finish there. They can entry A2X, however usually we’re discovering it’s institutional enterprise.
RYK VAN NIEKERK: And what are your buying and selling volumes at the moment?
KEVIN BRADY: The buying and selling volumes have picked up very, very properly. We went via a bit of a dip earlier this 12 months after we did an settlement with the JSE that allowed brokers to sort of transfer their positions between exchanges to make this entire course of of shopping for 600 on one trade, shopping for 400 on one other, after which reserving one notice. So we’ve sort of simplified that course of and I’m excited to say that September was a document month for us. We did about R4 billion in September and we’re operating at round a 3% market share of our universe of securities. So of these 88 securities, in the event you measure what’s buying and selling on A2X, [it’s] round 3%. But clearly in particular person names it’d be rather a lot greater.
RYK VAN NIEKERK: The common buying and selling quantity on the JSE is round R20 billion a day. So within the larger scheme of issues, A2X remains to be very, very small. I’ve learn that the secondary exchanges, for instance in Europe, have market shares of shut to twenty%. So there’s so much of room to develop.
KEVIN BRADY: There is so much of room to develop. That’s an excellent query. One of the challenges we’ve got in South Africa is our regulatory framework. The regulatory frameworks in Europe and Australia and the US – and in reality in lots of rising markets – have been superior to the stage the place they degree the enjoying area.
What do I imply by that? Basically, the very first thing is, if I used to be in Europe, I wouldn’t have to get an organization’s permission to make their shares obtainable for commerce. In South Africa I’ve to get the authority. I’ve received to knock on 300 doorways and persuade them of the deserves, the place in Europe I might get up tomorrow and say all these shares can be found for commerce. So that’s the very first thing that will make a ginormous distinction.
The second factor is South African regulation by no means contemplated an atmosphere the place you’d have listings throughout exchanges and also you would wish to have interoperability on the clearing area, which additionally makes it difficult. That comes all the way down to the purpose I made earlier, sort of like two exchanges and one dealer’s notice, which we’re advancing. So I feel we have to put SA in perspective. We are sort of combating with one arm behind our again. We are working with the regulators to deliver it in step with greatest worldwide follow and to degree the enjoying area. But I feel in mild of these constraints we’ve performed very effectively.
The second level is do we’ve got room to develop? Of course, you recognize, we’re focusing on 20/25% of whole exercise.
RYK VAN NIEKERK: Why is the regulatory atmosphere in South Africa so considerably totally different from that in Europe?
KEVIN BRADY: Well look, there’s little question it could make an enormous distinction for competitors in South Africa. Competition is nice. As South Africans we all know we don’t like sole suppliers of something. So you’re proper, it could unlock and unleash the potential of the competitors advantages it brings immensely.
Why are we behind? Well the final Financial Markets Act of 2012 was promulgated in 2013. Although we’ve seen this evolve elsewhere, that was written in such a method that it nonetheless sort of enabled the incumbent quite than [any] competitors. Now they’re engaged on it, they’ve sure timelines; they’re speaking about one other two years earlier than they’ve what they name ‘market conduct standards’ for exchanges in place, and that ought to begin opening it up. I feel they’ve actually been distracted with Twin Peaks. But sure, it is rather irritating that we’re lagging the remaining of the world by most likely 15 years.
RYK VAN NIEKERK: What is the standing of your relationship with the JSE? When the primary functions have been made for alternative exchanges – and I’m not speaking solely about A2X, there have been a number of others as effectively – the JSE went to court docket, it fought it tooth and nail, and it was evident that it was not happy with having competitors within the nation. Has the connection modified since then?
KEVIN BRADY: Look, I feel we are opponents and I feel the JSE not surprisingly will all the time do no matter it might probably to take care of its dominant place. I feel the place the connection works so much higher is on the regulatory facet, the place all of us agree you want a great regulatory atmosphere, a trusted regulatory atmosphere in phrases of market functioning, transparency, and many others. So we work collectively fairly effectively on that facet for the larger good of the market.
Look, we do interact with them. Obviously we bump heads now and again, however we perceive we’re the competitor they usually’re making an attempt to maintain us out.
RYK VAN NIEKERK: I stated earlier that there are 17 of the highest 40 firms listed on A2X, but it surely additionally means 23 of the highest 40 are not listed on A2X. What has been the response or reservations of these 23 firms to record on A2X?
KEVIN BRADY: Well, I feel the primary one is simply perceptions. As quickly as you ring them as much as say A2X is an trade, they go, ugh, we don’t wish to speak to you. Exchanges include prices and regulation.
Now clearly our mannequin shouldn’t be that; we actually are an alternative buying and selling venue. That’s the very first thing. Once you get via, you’ve received to steer the administration crew of the deserves of a secondary itemizing, after which they have an inclination to take it to their board for approval. So it’s simply actually a sluggish course of.
In phrases of the 23 that aren’t, I feel it’s actually that they wish to see what everybody else does. But now that we’re near midway via the Top 40, I feel hopefully the second half ought to come faster and simpler, as a result of they’ll see the advantages and, as importantly, I feel their shareholders will ask them for it.
RYK VAN NIEKERK: You’re additionally attracting the listings of a number of collective investments schemes, reminiscent of exchange-traded funds. The JSE is seeing the same pattern. Is {that a} key focus space for you, and what would the advantages be for buyers? Just decrease charges?
KEVIN BRADY: Well, look, I feel ETFs have been a giant development space globally, and we’ve seen it observe via to South Africa. So it’s an vital half of the rising market and to focus on them from an A2X perspective is vital. And I feel it’s precisely the identical factor. If you should buy the identical ETF in a special market, and you should buy it at a barely higher worth, and also you’ve received decrease charges, why wouldn’t you? So it’s completely in line with firm shares in phrases of why you’d do it.
RYK VAN NIEKERK: Is the trade worthwhile?
KEVIN BRADY: We’re not worthwhile but, however our projection suggests we might be worthwhile earlier than the tip of subsequent 12 months, given our present development projections and the foresight that we’ve got – barring any main criticism, modifications or surprises.
RYK VAN NIEKERK: Are you restricted to the itemizing of JSE-listed firms, or is it in any method potential so that you can enable secondary listings of massive worldwide firms like Alphabet, Amazon and Tesla?
KEVIN BRADY: An excellent query, and we’d love to have the ability to do this. I feel the regulatory atmosphere in South Africa doesn’t actually allow the inward itemizing in an unsponsored method of giant firms like that. However, that is one thing that South Africa must get proper. South Africa’s struggling in phrases of de-listings, in phrases of cash going offshore, and the regulatory atmosphere does have to evolve to allow this atmosphere to develop. That’s one space that will positively open up alternatives in South Africa.
And sure, can we characterize our considering and findings to the regulator? Yes we do, however I do know as an trade as an entire we are attempting to push it that method.
RYK VAN NIEKERK: Thanks Kevin, we’ll have to depart it there. That was Kevin Brady, one of the founders of A2X and he’s additionally the CEO.
