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Value of A2X stocks and funds reaches R5trn

‘We saw activity levels in September literally five times those in August, and I would guess by early next year we would anticipate seeing another major step change’: CEO Kevin Brady.

ROFHIWA MADZENA: One of South Africa’s leading alternative stock exchanges, which is A2X, has announced that it created more than R400 million in available savings for the industry in the past year alone. Of course you are also celebrating another milestone, Kevin [CEO Kevin Brady]. Many thanks for your time this evening. Talk us through the experience that A2X has had since it was established about four years ago.

KEVIN BRADY: That is correct. Thank you for having me on the show. You’re right. So we opened our doors for business four years ago, and we had three companies listed. Four years later we now have 56 securities listed on our market with a combined market cap of around R5 trillion. By market-cap standards that now makes us the second-largest exchange in Africa. It’s been an absolutely exciting journey, but obviously not without its challenges along the way, of which obviously Covid was one. Yes, we are obviously happy to be where we are in terms of the listings.

I think what’s really exciting for us is that one of our major hurdles along this road was brokers. Broker infrastructure is geared for one market, and to work with brokers and enable infrastructure to trade across markets has taken some time, where the key component really has been about post-trade, which is like a very intricate space, and we’ve come out with our own system. In unlocking these challenges, we’ve started to create a very sharp increase in activity on A2X, and so actually September for us has been an incredible month,

ROFHIWA MADZENA: Right. What’s important there is that part of that has been the ability for you to make available globally recognised exchange technology, which obviously has enabled some of those elements that you’ve just mentioned.

KEVIN BRADY: That’s 100% right. So you’re right, we licensed our technology from an outfit called Aquis Exchange in the UK; they’re a pan-European exchange, also fairly new. They’ve got about a 6% market share and it really is cutting-edge exchange technology. And then we’ve also done a deal with a local tech firm called MCI, where we built a post-trade system.

But you’re right. These advancements in technologies, along with business practices, have enabled us to deliver an exchange service at a fraction of the price. We take our efficiency gains and we pass much of them on in the form of lower fees. You mentioned the R400 million in available savings, and there are two components that make that up. One is that if you trade on A2X, the exchange fees are literally half the standard rates. Secondly, what it does is it attract additional players; you start seeing bid/offer spreads narrow, and that enables investors, when they buy and sell something a cent cheaper or a cent higher, [to see] when they sell all these savings add up. What we’re saying is, if you look at the 56 securities listed on A2X, over the past 12 months investors have had an opportunity to capture these savings; these savings add up to R400 million, which is a proper number.

ROFHIWA MADZENA: Right. I think it’s important here to also bring in the increasing importance and understanding of tapping into additional liquidity. Talk us through how exactly that would look and why it’s become very important, particularly when you speak about challenges like Covid-19.

KEVIN BRADY: That’s a very good question. Ultimately we’re trying to attract all types of investors into South African shares and South African listings – from the long-term investor all the way to the short-term investor. What we found is that the short-term investor is highly sensitive to cost. If you can reduce those costs, you can attract more of them. When I say ‘short-term investor’, you get a lot of people who buy and sell during the course of the day; of course, liquidity providers or … become very, very important globally with the use of technology. I think we’re able to track some of this new liquidity [in] South Africa. So the liquidity that’s being posted on A2X is new, fresh liquidity for South Africa that you can’t get anywhere else, and we’re very, very proud of that.

ROFHIWA MADZENA: Another important component here is healthy competition, as you’ve labelled it, when engaging on the stock market as you’ve been, creating platforms that put South Africa first. Talk us through that.

KEVIN BRADY: I haven’t come across an industry yet where competition hasn’t benefited the end user, and that’s true of exchanges as well. There’s no doubt that national exchanges have done a good job, but ultimately, when you have a competitor it makes you better at what you do. People become more cost-effective and so there are efficiencies that can be passed on. That has the benefit of obviously growing liquidity, attracting new investors and helping develop progress the overall market. Innovation, client service – all these things are an outcome of healthy competition, and we believe we’re playing our role in that to help develop South Africa’s capital markets.

ROFHIWA MADZENA: With that, what is the outlook for the exchange? Before the pandemic hit we saw some exciting listings that were happening; that’s obviously died down, and there is an array of reasons for that. Just based on the economy getting back on its feet, the attractiveness of corporates doing business in South Africa and looking to grow liquidity, your views on the future of the exchange? Before the pandemic we saw some exciting listings happening on A2X. That died down because of the pandemic and some other reasons.

But as the economy gets back on its feet and we see an attractiveness for corporates to do business in South Africa and increase their liquidity in various avenues, your thoughts on the direction that the exchange is going to be taking going forward?

KEVIN BRADY: Sure. You point is fair in terms of the pandemic. It obviously changed priorities for people and that makes it difficult. But in light of that, in the last 12 months we’ve added 20 securities to A2X. So, despite the tough environment, I think we are again proud of what we’ve managed to achieve.

Looking forward, there’s no doubt that it’s like many things, given the quality and the number of the companies we have listed, it makes it easier to pitch the next company. So there’s no doubt that we would expect the rate of adoption to accelerate and, in fact, just given the visibility of our plight right now we can see it’s going to accelerate. So we are quite comfortable that we will continue to add listings.

On the other side, in terms of brokers, as I say, we’ve got a couple of brokers we’ve worked with who are fully operationalised. There are a couple of big ones that are due to come on quite soon. So we’re in a very exciting position. We saw activity levels in September literally five times those in August, and I would guess by early next year, we would anticipate seeing another major step change.

So we are very excited that a lot of the hard work has now pulled everything together and we’re starting to see the rewards of it.

ROFHIWA MADZENA: Brilliant. Thank you so much for your time this evening, Kevin. That was Kevin Brady, CEO of A2X.


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