Secondary stock exchange, A2X issued an update on its operations on Tuesday, showing that since its launch in October 2017, it has recorded 80 000 trades to the value of some R5.7-billion.
But it still gets less than 1% of trades that take place among companies listed on both the exchange and the JSE.
Nevertheless, A2X says its lower fees and upcoming regulation is going to give it the muscle it needs to disrupt the JSE.
It is a shrinking market. The JSE has lost a couple of listings this year and even among companies who remain listed, few who are vocal, like PSG Group CEO, Piet Mouton has not held back his frustration about "over-compliance and regulatory burden" that have diminished the value of remaining listed.
Still, JSE challenger A2X Markets remains convinced it will continue growing its listings and wants to do even one better by luring internationally listed companies not yet secondary listed on the JSE.
A2X and the JSE are not competing entirely, because the former, partly owned by Patrice Motsepe's African Rainbow Capital (ARC), can only list stocks already on the country's main bourse.
Being a secondary listings stock exchange theoretically means that the JSE's ability to retain and grow its primary listing benefits A2X, because it presents a larger pool of companies that the latter could potentially attract to its exchange too.
But instead of an agreeable symbiotic relationship between the two, from the word go, A2X came in with the goal to disrupt the JSE by taking away its trading market share through lower fees, much like its sister company in the ARC stable, TymeBank set out to do in the banking world.
"Delistings are not ideal. It reduces the size of the market. It's not good for anybody," said A2X CEO Kevin Brady on Tuesday.
But instead of being cut up about the declining listings in South Africa, Brady said A2X was seeing an opportunity to play a bigger role in making the secondary listings market more efficient and attracting new players. And, at some stage, compete with the JSE directly for primary listings too "at cheaper and more efficient basis", even though that was more on the long-term horizon.
"Yes, a shrinking market is not good for anybody. Having said that, even a shrinking market is good enough for us to do well and we can grow the secondary market," he said.
A2X had always marketed itself to stockbrokers and shareholders of JSE-listed companies as the alternative to save costs and its efforts had, to date, helped it secure secondary listings of 37 companies, including JSE heavyweights like Naspers, Sanlam and Sasol.
But after a turbulent start of the year in the stock market, marketing a secondary listings exchange when companies and investors are preoccupied with questions on how to recover was always going to be difficult for A2X and the four new listings it clinched during the lockdown were completion of deals that had been in the making since 2019.
So, in August, A2X decided to do a comprehensive study, comparing buy and sell prices in all the shares that were listed in both its platform and on the JSE to prove that its bid-offer spread - the difference between the price at which you could buy a share and the price at which you could sell it - was smaller than that that of the JSE.
Brady said now that A2X could "conclusively" show that spreads in its exchange are much narrower, it is hopeful that it would not only be able to attract more listings, but also convince more brokers to trade on its platform rather than on the JSE.
GROWING ITS MARKET SHARE
Currently, less than 1% of share trades for all the companies listed on the exchange take place on A2X. But days were not the same. On good days like the past Monday, Brady said A2X captured 5% of trading that had it stocks listed on both the JSE and A2X.
"It's less than a percent, but it's growing at a sharp rate... We had a record month in July and our second-best month in September and October is now becoming our second-best month. Our goal is to capture 20% of all trades in total in the next three to five years," he said.
The exchange also wants to attract 70% of the top 40 shares in the JSE Shareholder Weighted (SWIX) Index by 2022 - the stocks that trade often. Currently, it has 40% of the SWIX index shares secondary listed on its platform.
The company is pinning its hopes on an ongoing review of international financial services regulations which could allow it to secondary list companies without first obtaining their approval. Currently, A2X has to get companies' permission to list their shares, even though it does not come at an additional cost to them.
"As a backstop, we anticipate that within two to three years we'll be able to list anything that wasn't listed in our market," said Brady.
A2X also announced on Tuesday that it was granted a further licence extension to list foreign companies with a primary listing in an approved jurisdiction, but not secondary listed on the JSE.
"It's a long-term play. It's difficult to motivate a company that has a primary listing in jurisdictions like Australia, Europe or US to consider listing in South Africa. It's a difficult sell proposition, but we have seen some interest out of Africa, but nothing tangible to show for now," said Brady.