Six years and 183 listings for A2X

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JIMMY MOYAHA: The A2X is celebrating six years in existence. This is an alternative exchange to the JSE in South Africa and a couple of JSE-listed companies are listed on the A2X exchange as well. The exchange has grown dramatically over the past six years from trading volumes of around R657 million to, I think, the latest figure of around R75 billion.

I’m joined on the line by A2X’s CEO Kevin Brady to reflect on this as well. Good evening, Kevin. Thanks so much for taking the time. How have the last six years been?

KEVIN BRADY: First, thanks for having me on the show. Like any journey, I think you start off probably underestimating the challenge, and that’s probably true of us as well.

We’ve had a lot – a number – of obstacles along the way, from Covid to updated regulation.

But we’re incredibly excited about where we are and I think the last year has really been successful for us in the sense that we’ve seen a lot of that hard work really come to fruition, and the trading volumes and the listings come through at an accelerated pace.

So yes, it’s been a tough journey but exciting, and we’ve learned a lot.

JIMMY MOYAHA: How much tougher is it from a journey perspective, Kevin, to build an exchange, because that’s not something that is done very often?

KEVIN BRADY: [Chuckling]. That’s a fair comment. Definitely harder than we thought. As I said, probably the biggest challenge we’ve had is outdated regulation.

When we got our licence in 2017 we foresaw the rollouts of the best international practice within a year or two. We’re sitting in 2023 – and we still haven’t seen it, although we are expecting a third draft quite soon.

That would’ve made it a lot easier because it would’ve kind of levelled the playing field from day one.

For instance, you can list companies without their authority, their best execution requirements in place. There are interoperability requirements between the primary and the secondary exchange. All these things would’ve made the journey a lot easier.

Nevertheless, it does show you a determination and I think an opportunity that’s really been supported in the South African market, both by the issuers and by the brokers. We wouldn’t be where we are today without that support.

JIMMY MOYAHA: Well, three years of that went to Covid, so no one can blame you for that.

Kevin, let’s look at the instruments that A2X has, because it’s not just companies that you’re offering for retail investors and other investors to be able to trade on. Is that correct?

KEVIN BRADY: That is correct. We have a total of 183 securities listed on A2X – 63 of them are ETFs [exchange-traded funds], and all the main issuers are there: Sygnia, Satrix, OneVest, Absa Commodities. So they’re all there.

And then we’ve got 120 companies that have a secondary listing. Of those, 31 are Top 40 companies.

Our universe of trade represents about 74%, 75% of where all the trade takes place. So yes, we’ve made huge progress. Would we like that higher, towards the 85% level? Of course, and we’re working on it. But yes, we have a substantial amount of issuers or listings that allow people quite a broad breadth to trade.

JIMMY MOYAHA: Kevin, why would someone trade on the A2X – a novice investor who doesn’t really understand the differences between the exchanges? What value does A2X provide to investors, because in this latest set of updated numbers you guys have said that you’ve provided more than R900 million in savings to investors? How is it different trading on A2X?

KEVIN BRADY: Good question. The value proposition is really that we like to give choice where people haven’t had choice before.

You’re quite right, it’s a cost-effective platform. In short that means that the exchange fees component on A2X are about half those of the incumbents. So there are real savings to be had there.

What’s important with lower friction costs and the way one prices is that this allows you to attract new liquidity to the market. This brings a narrower spread. So, for instance, if you wanted to go buy 1 000 shares at R10, you may be able to buy them on A2X at R9.99, so you’re saving a cent. That cent reflects about 10 basis points. Those savings add up; we refer to those as indirect savings.

So between direct savings and indirect savings – and if we look at our universe of 183 securities – we estimate that we’ve made savings available in the order of about R900 million over the past 12 months.

JIMMY MOYAHA: Kevin, where to for A2X from here?

KEVIN BRADY: I think it’s kind of twofold. The first thing is we want to continue to build the core business – and that means more listings, it means additional brokers, more trade taking place. That’s a key component for us.

We’re also driving new audit types, which kind of help unlock dormant liquidity and make it easier for brokers to execute.

And then the other side is we are trying to attract what we refer to as a unique product.

So we are able to inward list; we have 12 approved exchanges where companies on a foreign exchange could inward list in South Africa, and we’ve been doing a lot of work around that, trying to attract inward listing to South Africa.

We’ve been in an environment of delisting. So while this is not a short-term play – it’s probably a medium-term play – we’d like to bring more listings to South Africa.

I think if we can push those two forward, there are opportunities further down the line.

But in the end, competition is good. It makes both exchanges a lot more competitive, innovative and service orientated – and that benefits the end consumer.

JIMMY MOYAHA: Kevin, you touched on something earlier about the need for making markets more accessible, especially to investors. How do investors get in touch with A2X? Is there a platform where investors can come in and trade? Is it done through the banking system? How does it all work for newer investors?

KEVIN BRADY: Look, an investor needs to contact their broker. If we look at the top 10 brokers, six of them are signed up and trading on A2X; another three have pulled the trigger.

So we have most of the major brokers either on or close to being on A2X, although I do caution that the focus really is on the institutional market.

So although a retail investor can transact on us, it is a little bit more complex, and it’s something we’re going to be unravelling in the future to try and make it easier. But for now, it really is dominated by the wholesale institutional market.

JIMMY MOYAHA: Well, that wholesale market does appreciate having those narrower spreads, especially if they are price-sensitive on that. Thanks so much, Kevin.

That was Kevin Brady, CEO of A2X, giving us an idea of how the exchange works as they celebrate six years in existence.