EXCLUSIVE: ZAR X in talks with JSE-listed companies to transfer their listings
But ZAR X's talks are still at an early stage.
South Africa’s alternative stock exchange ZAR X is in talks with Johannesburg Stock Exchange (JSE)-listed companies to transfer their entire listings from the country’s main bourse to its trading platform.
In an interview with M&A Africa on Wednesday, ZAR X CEO Etienne Nel (pictured) said “a couple” of JSE-listed companies, which he didn’t name, have already expressed interest in transferring their listings to the stock exchange he runs.
“We are talking to a couple of JSE companies to possibly transfer their listing to us. They would be moving their entire listing from the JSE to ZAR X,” said Etienne.
“People in the investment community have asked us if we can do this. Effectively, it is akin to transferring your bank account. It is like moving from Bank A to Bank B.”
If ZAR X’s talks are successful, it might cement itself as the main competitor of the JSE, which had a monopoly in the bourse space for many decades.
With South Africa having around 370 listed companies, Etienne didn’t mention how many companies ZAR X is targeting for its trading platform because its talks with JSE-listed companies are still at an early stage.
However, he said there is a “positive” appetite from companies to transfer their listing to ZAR X because of the high and ongoing compliance costs associated with being a publicly owned company. And a difficult South African economy, which is biting into company profits, is forcing companies to cut costs and seek alternative ways of being publicly owned but at a lower cost.
“We reckon that to maintain a listing on ZAR X, it would be 70 to 80 percent cheaper,” said Etienne. “Because the economy is tough, there are companies that made R30-million in profit after tax for many years but are now making R15-million and their cost of listing is still a high expense. A lot of companies are saying that the cost of listing is 20 percent of their profit after tax.”
For example, there are costs for brokers and companies to participate in the JSE.
For brokers, the JSE has a connection fee, transaction fee, clearing fee, broker deal accounting fee, and real-time price data fee. Meanwhile, companies pay fees to the JSE for being listed including, among others, publishing notices about financial results and other company-related matters on its regulatory news service.
But ZAR X has pitched itself as a platform that reduces listing costs through, among other ways, imploring companies to publish their financial results online and not print them in newspapers.
“We also tell companies that they can have a digital annual general meeting instead of having a physical one where they have to rent a room. These bring additional costs savings, which makes listing on ZAR X compelling.”
ZAR X was the first of four new stock exchanges to be launched in South Africa in 2017 (although it was granted a regulatory licence in August 2016), in what is the first challenge in decades to the JSE’s dominance. Its debut was followed by the take-offs of 4 Africa Exchange, A2X Markets and Equity Express Securities Exchange.
But ZAR X is the first to make a bold target of possibly transferring the listings of companies from the JSE to its platform. Its competitor, A2X Markets, doesn’t intend to replace the JSE as it offers companies that are primarily listed on the JSE a secondary listing on its platform.
Etienne said companies are still intimidated by alternative exchanges, even though some have built a track record for several years.
While few dispute that the alternative exchanges will promote competition and financial inclusion, there are still concerns about whether they have the adequate technology infrastructure to carry large trading volumes.
But Etienne dismissed this. “Our systems can do north of 250 trades per second, which is the same level of trades the JSE does on futures contracts. For example, we could list Prosus tomorrow and our systems would be able to handle it.”
Prosus is the internet business of media company Naspers, which houses Naspers’ the stake in Tencent, the world’s biggest video game company. Prosus recently listed in Amsterdam.
In addition to targeting JSE-listed companies, ZAR X also plans to launch a unit trust trading platform. Using blockchain technology, it plans to launch a platform that will allow members of the public to directly buy and sell a wide range of unit trusts.