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FSCA suspends ZAR X’s exchange licence

CEO says ZAR X is negotiating with a number of prospective investors.
A trading floor opening bell at ZAR X. Image: Waldo Swiegers, Bloomberg 

The Financial Sector Conduct Authority (FSCA) has suspended the exchange licence of ZAR X, effective from 16:00 on August 20, 2021.

In a statement issued on Monday, the authority said this follows ZAR X’s non-compliance with the Financial Markets Act (FMA) and FMA regulations relating to an exchange’s liquidity and capital adequacy requirements.

The suspension remains effective until either ZAR X rectifies its non-compliance with capital adequacy requirements to the satisfaction of the FSCA and the Prudential Authority, or the FSCA makes a final decision on the cancellation of its exchange licence.

Co-founder and CEO Etienne Nel said ZAR X notes with concern the decision by the FSCA to suspend ZAR X’s exchange licence and has lodged an appeal against the decision.

“The regulatory capital requirements prescribe the minimum amount of liquid capital that an exchange must hold, taking into account the business profile of the exchange. ZAR X has been in discussions with the regulatory authorities in this regard and will continue to work with [the] FSCA in the interim to resolve the position.”

Background

Nel explained that in December 2020, ZAR X concluded a significant equity transaction with a foreign-based investor to acquire a controlling interest in the exchange.

“The transaction has since stalled due to an inability by our largest shareholder, the PIC [Public Investment Corporation], to grant formal approval of the transaction due to protracted internal issues and governance processes.

“In view of the action taken by FSCA, the board of ZAR X will proceed to act in the best interests of the company and all stakeholders.

“In the circumstances, ZAR X is at an advanced stage of negotiation with a number of other prospective investors,” said Nel.

“ZAR X has a significant pipeline of listings that have been delayed due to Covid but will certainly come to fruition once the transaction has been concluded.”

Timing ‘unfortunate’

Nel said that while the timing of the suspension is unfortunate, ZAR X considers it to be temporary, posing no risk to issuers or investors who hold their assets in their own name directly at central securities depository (CSD) Strate.

“The long-term objective of ZAR X as an efficient and accessible capital markets platform that can help drive financial inclusion and facilitate capital raising remains in place,” he added.

The FSCA said ZAR X may operate as an exchange “to give effect to transactions in progress or otherwise not finalised at the date of suspension, but may not allow further trading or accept new issuers to its list”.

Accordingly, Nel confirmed later on Monday that transactions already in progress or not completed, which include corporate actions and orders already within the ZAR X Trading Platform, “remain unaffected and will proceed in the ordinary course of business”.

South Africa’s first alternative exchange, ZAR X went live in February 2017. The exchange pioneered the use of T+0 (Realtime) settlement in South Africa and says it operates an innovative exchange model that seeks to drive financial inclusion and facilitate access to capital.

ZAR X is required to immediately inform all affected persons – including issuers with listed securities on its exchange, authorised users of its exchange, investors, appointed CSDs, and all its stakeholders – that its licence has been suspended. It must also provide the FSCA with weekly progress reports.

FSCA Commissioner Unathi Kamlana said: “We don’t take this regulatory action lightly, given its impact. Our view however, is that this is a necessary step to safeguard market integrity and the interest of issuers and the broader investing public.”

The authority intends to proceed with cancelling ZAR X’s exchange licence if it does not rectify its non-compliance with the capital adequacy requirements within three months of the date of suspension.

This is a developing story.

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Ahem! wtf?

Is ZAR-X running on lies, or are they being bullied into non-existence by the big boys?

Will someone please provide some actual information? – because this article doesn’t.

One has to assume that the dominant exchange in South Africa has something to do with this. ZAR-X’s model clearly doesnt fit with the future vision of capital markets in South Africa which means they need to either go along with the changes or be eliminated.

In addition, how on earth does an exchange that operates on a real-time settlement model require capital adequacy?

Crypto trading platforms processing hundred of millions if not billions daily can proceed unabated …. level playing field? Where is the greater risk?

The ZAR X real-time model is ahead of its time in SA as aims to cut out the myriad of middlemen feeding at the trough. No wonder the old establishment has an interest in its demise.

Exactly, listening to the JSE Ltd ‘s interim results a few weeks back, its clearly in their interest to maintain the expensive settlement model and through the licensing of JSE Clear as the only central clearing house in South Africa, establish a new monopoly around this.

It cant be a coincidence that the closing date for objections against the licensing of JSE Clear came on the same date as ZAR-X was suspended.

End of comments.

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