4AX seeks to reach untapped market

Johannesburg – New stock exchange, 4 Africa Exchange (4AX), aims to ensure more inclusivity in financial markets by targeting its services to those companies which previously did not have the opportunity to list.

This is according to chief executive, Fay Mukkadam, who was speaking at a breakfast on Wednesday. Mukkadam highlighted the reasons behind the formation of this alternative stock exchange.

Since the establishment of the Johannesburg Stock Exchange (JSE) more than 130 years ago, Mukkadam said the law always permitted the establishment of another stock exchange. The launch of 4AX will create opportunities for South African companies across different sectors such as agriculture, financial services, the renewable energy space, property space, tourism and hospitality.

This is with the intention to address the gap in the economy, stemming from the legacy of apartheid such as income inequality, and exclusion. “One third of the working population is excluded from the economy,” said Mukkadam. These obstacles presented an opportunity in the market to develop a new exchange, she explained.

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There is a “commercial need” for an additional licenced exchange, trading across multiple asset classes in South Africa, she said. “4AX is a cost-effective and well-regulated alternative solution,” she said. The aim of 4AX is to develop and deepen capital markets in South Africa in a “fair, efficient and transparent” manner.

Companies targeted are those with a market capitalisation above R100m to R8bn, to suit the “unique needs” of the retail investor and to provide an alternative platform of trading securities for the institutional investor, she explained.

The idea to establish 4AX started in 2014, when Over-The-Counter (OTC) trading appeared to be affected by the Financial Markets Act (FMA), in which OTC platforms would require a licence from the Financial Services Board (FSB) to operate as exchanges.

However, since then the thinking has changed, said Mukkadam. 4AX aims to simplify listing requirements and fee structures through centralised functions that reduce the number of role players and streamline transactions, she explained.

4AX offers a disruptive technology, in that it has a central registry.  “A central register of beneficial ownership will provide financial inclusion and empowerment,” she said.

Further, the exchange eliminates minimum fees for trading, there are no monthly custodial fees, and there is one central place for the verification of restricted shares such as BEE shares, she explained.

The central register of beneficial ownership model allows for the dissemination of relevant information of shares to retail shareholders through mobile devices at no additional cost.

The registry also provides other “unique” competitive advantages such as proactive market surveillance at no cost, real time information sharing and dissemination of announcements to retail shareholders for free. Electronic voting is also provided, to promote shareholder democracy, she explained.

Competition          

“4AX does not compete with others, but serves an untapped market,” said Mukkadam. The exchange provides access to financial markets for private individuals, brokers, institutional investors or financial advisers and allows them to trade, invest and grow, she said.

Focus areas include OTCs, medium-sized businesses, restricted schemes, special funds and vehicles and Real Estate Investment Trusts (Reits). “We will start off with equities and move to debt and other asset classes,” she added.

When considering companies, Mukkadam said the exchange would consider those who are not listed, and would consider market capitalisation among a variety of things.

“We have investor protections and regulations in place as is with any stock exchange,” said Mukkadam.

Chairperson Chichi Maponya said that a wide part of the market was untapped and 4AX’s focus would not only be institutional investors but the retail market. “We are not primarily looking for companies on the JSE or AltX, but it is a free market for those who feel better suited to 4AX,” she said.

Maponya added that the exchange was working with the Gauteng government to roll out investor education to involve those in township enterprises, entrepreneurs and stokvels or informal schemes to expose them to investing on an exchange.  

READ: Failed JSE appeal paves way for ZAR X launch

Mukkadam reiterated that the exchange was not competing with anyone. “We are targeting the market not previously targeted,” she said.

She added that 4AX is a fully-fledged, well-regulated stock exchange, which will not be “exclusive” in its listings.  

Previously Fin24 reported on a failed appeal by 4AX to have a trading licence to another alternative stock exchange, ZAR X removed. “We believe our concerns were not adequately addressed by the appeal board. So we are concerned in terms of the systemic risk it poses,” she said.

4AX subsequently applied to have the judgement by the FSB appeal board reviewed.

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“Everybody views exchanges as the same. A lack of adequate controls, checks and balance, will have a blow back for us.” Similarly, Mukkadam said that shortcomings by the 4AX system would have reflected negatively on the JSE, which is why they feel so strongly about the appeal.

The JSE had previously appealed the FSB’s licence granted to 4AX. But this was dropped after 4AX demonstrated that its business models and controls did not introduce systemic risk to the market, she said.

“Any trade must be done in a regulated fashion on a stock exchange platform. We see a lot of applications to the FSB,” she said. Just because some exchanges meet legal requirements in their application for licences, it does not mean they will be fully-fledged stock exchanges.