South Africa gets a new stock exchange whose aim is to simplify investing

ZAR X will compete with the long established Johannesburg Stock Exchange (JSE)

South African company ZAR X announced on Wednesday that it has been granted a stock exchange licence by the Financial Service Board (FSB), the government’s financial regulatory agency. The licence, which the company had applied for since July 2015, enables it to operate a fully-fledged, independent stock exchange that will compete with the JSE, which was established in the nineteenth century. Trading on the new ZAR X is expected to begin on September 1 2016.

The aim of ZAR X is to make it simpler and cheaper for investors to trade, as their core values are simplicity, low-cost, transparency and agility. Their technology allows investors to trade using mobile devices such as smart phones. The state of the art technology platform will ensure that transactions are executed on a T+0 or same day settlement of trades compared with the  T+5 or five days between matched trade and settlement and clearing into an investor’s account on the JSE. The ZAR X model is highly recommended and significantly reduces settlement risk as all transactions are pre-funded.

A key-driver of ZAR X was to foster the financial inclusion of lower income South Africans in the same way that M-Pesa promoted financial inclusion amongst the unbanked in Kenya.  In addition to the time and cost-saving features of ZAR X, a unique innovation is free safe custody facilities for investors.

The founders of ZAR X and pioneers of the new approach to investing and listings are Etienne Nel, who previously set up and operated an established over-the-counter (OTC) trading platform, as well as Geoff Cook and Graeme Wellsted, ex-Investec alumni who are experienced compliance and legal advisors.

“ZAR X has no historical practices and legacy systems which drive up costs and slow down transaction times. Our platform is specifically designed to give businesses a flexible, transparent and affordable way to list their shares. In particular, the exchange is especially well positioned to facilitate listings of restricted share schemes, currently trading OTC, which the FSB ruled were in contravention of the Financial Markets Act,” Nel said.

Three ZAR X boards are available to issuers:

  • A main board for company listings, with compliance documentation significantly reduced when compared to the traditional model following a shift from a rules-based to a principles-based dispensation.
  • A ‘restricted market’ – a formalised version of previous OTC platforms for the trading of Broad-Based Black Empowerment ( BBBEE) shares and other securities that can only be bought and sold within a limited marketplace where issuers require some control over the liquidity in their shares.
  •  An investment products market – a platform for the trading of structured products and preference shares.

Other entities such as A2X and 4 Africa Exchange have also submitted applications to the FSB to operate stock exchanges in terms of section 7(4) a of the Financial Markets Act.