Africa’s largest stock exchange is about to face direct competition with the rise of A2X coming to the fore.
Kevin Brady, Co-founder and CEO of A2X, told CNBC Africa that it started the process of applying for a licence about a year ago, he described the application as “quite a detailed process, it really is a blueprint of how you are going to run an exchange”.
Brady expressed that the dialogue with the Financial Services Board has been quite constructive. It expects to have a licence to operate soon. “Assuming everything goes smoothly, we expect to be running in the second half of 2016,” he projected.
On the challenge of taking on the Goliath of stock exchanges in Africa, Brady admitted that “it is a daunting experience… nevertheless the way we have looked at it, we saw the new Financial Market Act (FMA) coming in, in 2012/2013 and that opened up the scope for competition.”
JSE operating revenue rose 16 per cent to one billion rand and group earnings after tax grew 29 per cent to 430 million rand.
In response to competition from the new kid on the block, Nicky Newton-King, CEO of the JSE, said it has been competing for most of its life. “If you look at the significant investments we have made in our technology and our people that have enabled us to achieve that global competitiveness ranking… we are in reasonably good shape to compete, I’m looking forward to it, “ she said.
According to Brady, the combination of factors that made this venture viable was firstly, the change in regulation. Secondly, the modern technology which allowed A2X to do things cheaper by following best practice.
“The key is to find the right team; the right people at the right time, from funders to technology partners to the people who are actually doing the work, and when you bring all that together it’s very possible,” he said.
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Brady shared with CNBC Africa, that A2X has styled its model according to what is called the MTF (multilateral trade facility) model in Europe. “This means you have a primary exchange where the listings happen, but you can also trade in the secondary market in various venues. You have a choice of where you want to trade,” Brady explained.
“With that type of model, we believe we can bring in a high performance platform, we can offer members choice and yes we can reduce costs materially,” Brady offered the mission statement of A2X.
Brady stated that the reduction of direct fees would be somewhere between 30 to 50 per cent depending on the broker.
The two key funding partners that contributed to the fruition of A2X in its personal capacity are Ashley Mendelowitz, founder and former CEO of Peresys and Sean Melnick, founder of Peregrine.
Brady highlighted that these partners both built the business.
From a technology point of view A2X partnered up with Aquis, an exchange in the UK that was launched in October 2013 led by Alastair Haynes.
A2X means “an alternative exchange” which is how the name came about, said Brady.
It however is not the only company to have applied to the FSB for stock exchange licences. There are two others: 4 Africa Exchange (4AX), formed by a consortium of stakeholders including Bravura Capital and agricultural business NWK and ZAR X established by Etienne Nel, who headed Equity Express, which provided trading technology for over the counter trading.