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What if you could buy cheaper shares on another exchange?

Well, you can.

On Thursday A2X Markets announced that Sygnia Limited will be taking up a secondary listing on its exchange on September 13. The asset manager will be the 11th company to list on the new bourse.

A2X’s business model is to offer companies already listed on the JSE a platform for a secondary listing. It therefore competes directly with the country’s largest exchange.

Read: Coronation, Peregrine and ARC the first to list on A2X

In the 11 months since it launched, however, A2X has only managed to sign up one new issuer a month on average. CEO Kevin Brady acknowledges that it’s been harder than they expected to get companies to take up a secondary listing.

“Accessing decision makers at top corporates takes time,” he says. “Educating corporate South Africa around the benefits of an additional listing also takes time. Like many new things there are a lot of perceived risks that aren’t really there.”

This is despite the fact that there is no cost in taking up a secondary listing on A2X. There are also no additional regulatory requirements on companies, so no extra effort is required either.

Brady does however believe that the exchange is nearing a tipping point. Two JSE Top 40 companies have already listed on A2X – Sanlam and Growthpoint – and he said a third has been signed up and will be listing in the next four to six weeks.

“As the year has gone on, we have found the process has become easier and faster,” he says. “Sygnia is an important listing for us as well because obviously it’s a very strong brand. It is also an innovator and disruptor, so to have it support what we are trying to do is a great message.”

Sygnia is also one of the largest exchange-traded fund (ETF) issuers in South Africa, and A2X is awaiting approval from the regulator to include the secondary listing of ETFs on its market.

The case for secondary listings

Brady argues that there is significant evidence from international markets on the benefits of having shares trade on more than one exchange. This is what A2X aims to realise in South Africa.

“By bringing in the latest technology and latest techniques we can create efficiency savings, and pass those on to the market,” he says. “To transact on our market is 50% cheaper than on the JSE. If we had 20% market share, the industry should save R200 million a year.”

He says just the presence of new competition had already led the JSE to drop its own transaction fees.

There are also indirect savings to the industry, as creating a better quality market leads to a narrowing of bid-offer spreads. Prices on A2X may therefore be better than those on the JSE.

“By cutting the costs, you bring in new participants and that increases liquidity and narrows the spread,” says Brady. “Those benefits for the end investor are huge.”

A quick analysis by Moneyweb at 16h45 on Thursday afternoon found that the offer price on Coronation was nine cents lower on A2X. It was four cents lower on Peregrine, and one cent lower on Anchor Capital, Afrimat, African Rainbow Capital and Sandown Capital.

These differences may only be a few cents, but if someone is buying hundreds or thousands of shares, that may not be insignificant.

It is unlikely to be a coincidence that the majority of A2X’s listings are either financial services companies or have investments in the financial sector. These businesses are more likely to appreciate the benefit to the market.

Getting stockbrokers on board

The other imperative for A2X has been getting more stockbrokers to use the exchange. Currently it has nine stockbrokers as members, but only five of those are active. The other four have not yet placed any trades.

Kevin Barlow-Jones, the stockbroker in control at Sinayo Securities, told Moneyweb that they are a member but have not yet used A2X for two main reasons. The first is that clients have not requested it. The second is that the volumes traded are still too small to warrant the expenses involved in getting set up.

Stockbrokers on A2X need a separate system to the one used on the JSE, which requires an additional outlay that Sinayo is not yet prepared to make. However Barlow-Jones says that in time he does expect A2X to reach a critical mass at which point it will make sense to do so.

Brady acknowledges that while stockbrokers do understand that having competition will save them money, the investment required is a hindrance. However, as more companies take up secondary listings, the economics will also make more sense.

“It will also take their clients asking them why they don’t trade on A2X if it’s a cheaper destination,” he says. “We need to raise awareness, because if they don’t see the prices, they don’t know if they can get a better price.”

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Would this not lead to a capital gain transaction since all shares would have to be sold and repurchased to make the move. Your comments will be appreciated.

Hi Brian, no it would not lead to a capital gain transaction. A2X only lists companies that already have a listing on the JSE. Once a company has undertaken an initial public offering, these shares sit with a range of investors. Should these investors wish to buy more or sell their existing holdings, historically they would need to go back to the JSE to transact. However, they now have a choice to transact on either the JSE or A2X or across both. They are the same shares whether transacted on either of the exchanges. In A2X’s case, it is a much lower cost venue. This in turn creates savings for both the broker and the end investor.

Essentially, if an investor is already holding the shares on the JSE – they don’t have to sell them and then repurchase them on A2X? I think that’s more Brian’s point.
The value A2X brings is only if the investor wants to purchase more of the same shares listed on both exchanges?

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