South Africa’s securities exchange war goes to court

Court is the next battleground in a war to redraw the securities exchange landscape in South Africa. New exchange 4AX has launched a High Court application to set aside both the decisions of the FSB regulator and its Appeals Board to give a licence to new exchange ZAR X, according to Moneyweb .

For more see AfricanCapitalMarketsNews blog post.

Last September South Africa’s Financial Services Board awarded licences to ZARX (Pty) Ltd (ZAR X) (on LinkedIn here) and 4 Africa Exchange (Pty) Ltd (4AX) (see our story here) .

The JSE and 4AX appealed against ZAR X’s licence but in February 2017 the FSB Appeals Board dismissed the appeal, saying the FSB had complied well with the Financial Markets Act 2012 (FMA), and awarding ZAR X full costs (see another Moneyweb article). ZAR X settled its first trade in February 2017, delayed from an initial September launch date. Its first listing was agribusiness Senwes.

In February Donna Nemer, JSE Director of Capital Markets, said the JSE will fully respect and abide by the decision: “We are still very committed to the market and the participants in this market, and will cooperate fully in the debate on how we should be evolving going forward,” she said. “We will continue the work we are doing with the regulator and all the market participants, including the new exchanges, to maintain the high quality capital markets for which South Africa is really well known.” The JSE is not joining the new court case.

Also in waiting is exchange A2X, which has a licence application with the FSB. For more background on 4AX see our story.

Why another exchange?

The new bourse has 3 listed securities and 7 authorized market participants or brokers, according to its website. It says many listings are set to come.

According to Geoff Cook, cofounder and director of ZAR X, writing in Business Daynewspaper this month: “Nowhere is radical change more desperately needed in SA than in the capital markets. The model that has dominated for more than 60 years is stagnant, with no broadening of the capital markets. It is also hopelessly skewed against the private investor.”

Volumes had grown of trading over the counter (OTC) in shares in black economic empowerment schemes for big companies such as MTN, Vodacom, Multichoice, Sasol and Imperial. Other OTC schemes were being operated as restricted shareholder platforms such as large agricultural cooperatives Senwes, TWK and KWV, while a few other companies sought liquidity at low cost for a limited spread of shareholders.

Stokvels - South Africa's $3.8bn savings pool

Cook claims there is huge potential for retail investors to buy securities: “Stokvels, whose members are active savers and investors, have more than 2m members. The Zion Christian Church has about 4-million contributing members. The potential size of the ’uninvested’ retail market is unknown, but I would suggest it is in excess of R700bn. The market system has ignored it.”

ZAR X also hopes to work with other exchanges “particularly in Africa”.

Stokvels are a big part of life in South Africa, with estimated 810,000 stokvels and 11.5m members, with a stokvel economy worth R49bn ($3.8bn), according to the National Stokvel Association of South Africa. There is even a comedy show called Stokvel on DSTV's Zambezi Magic.