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A2X growing steadily

Mr Price announces its secondary listing on the competitor to the JSE, and more companies could join the list soon.

The listing of Mr Price on A2X will increase the number of JSE companies that have opted for a secondary listing on the fairly new stock exchange to a total of 20, and pushes the total market capitalisation of shares listed on the new player close to R2.5 trillion.

Mr Price shares will be available for trading from May 2, around 20 months since A2X switched on its trading system for the first time.

In essence, A2X has been able to add a new listing every month since the exchange opened on October 6, 2017.

“We are very happy with the progress to date,” says Gary Clarke, head of legal and regulation at A2X. “Breaking a monopoly is an incredibly hard thing to do and we knew it wasn’t going to be easy.”

Trading statistics on A2X prove that it was indeed difficult to get going. Volumes only started to pick in the second year of operation, after the listing of a few of the large Top 40 stocks on the exchange. Growthpoint Properties was the first in July 2018, followed by Standard Bank and African Rainbow Minerals in November. Naspers opted for a secondary listing on A2X in December.

Picking up speed

A2X now boasts six Top 40 shares which – thanks to Naspers’s big weighting – account for more than 30% of the value of the Top 40 index. In addition, A2X expects that new listings will follow more quickly going forward.

“It is important to remember that corporate SA didn’t know who we were 18 months ago,” says Clarke. “In the meantime, we have had discussions with just about all the big companies. The majority support an alternative stock exchange and several are considering listing on the A2X as well.”

Clarke says the profile and credibility of A2X has improved since its launch and that companies are starting to approach A2X to inquire about a secondary listing.

A2X recently received approval from the Financial Sector Conduct Authority (FSCA) and the South African Reserve Bank to offer secondary listings of exchange-traded funds (ETFs) and exchange-traded notes (ETNs). Clarke says A2X is engaging with various ETF and ETN issuers to list these products on the exchange, while primary listing of some type of index fund or index product is also possible in the future.

Moneyweb specifically Clarke asked about the listing of the other Naspers companies subsequent to the present unbundling. “We met with MultiChoice about the proposition of listing, while we will speak to Naspers’s new foreign listed entity as soon as the unbundling is completed.”

A2X has also had discussions with the other banking groups about joining Standard Bank (and Standard Bank’s preference shares) on the exchange.

In contrast to international practice, SA regulations require that the exchange get permission from companies for a secondary listing on any alternative stock exchange. The result of this is a long process as A2X first needs to meet with top management to get their approval. Management teams then generally choose to refer the decision to the board of directors. These decision makers are obviously all very busy with the day-to-day running of their companies, thus a new listing on A2X could take several months to become reality.

The process is glaringly more difficult than the listing of more risky derivative instruments based on shares on different trading platforms, such as contracts for difference, options or warrants.

Benefits of lower transaction costs

Nevertheless, companies are increasingly starting to appreciate the benefits of having a competitor to the JSE and realising that A2X can prove that lower transaction costs serve to increase liquidity and narrow spreads in the market, says Clarke. According to figures from A2X, transaction costs are even lower than had been anticipated at the time of launch in 2016, offering market participants savings of as much as 50% compared to the JSE.

These cost savings translate into lower spreads in the market and, essentially, a more efficient market.

A2X stated at its launch that it could gain a 20% share of the market, which would translate into total savings of around R1.2 billion per annum (R200 million in direct savings and R1 billion in indirect savings as a result of narrower spreads). The A2X business model caps transaction fees at a maximum of R355 per transaction.

Source: A2X

By March this year, trading volumes on A2X exceeded R100 million compared to less than R50 million in January and very low figures during the first year. A2X continues to gain market acceptance, not least of all because the trading application is supported by the global Bloomberg terminal, as well as Thompson Reuters.

A2X believes it has enticed new global investors to SA; investors that had been of the view that SA is a high-cost destination for investors.

Clarke says international experience has shown that new competition and technology promote higher liquidity and result in higher trading volumes overall.

“A2X is looking to get some of the existing business of the JSE, but expects the market to grow by up to 30% over the medium term,” says Clarke. “We aim to capture 20% to 25% of the total larger market within the next five years.

“Once we have entrenched our track record, we will consider offering primary listings across all product ranges.”

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