A2X is booming – but can’t save the JSE

While A2X makes it easier for JSE-listed companies to obtain a second listing and for South Africans to invest, the stock exchange will not be able to save the incumbent JSE from its spate of delistings.

Trading platform A2X Markets was founded by Sean Melnick, Ashley Mendelowitz and Kevin Brady with the goal of creating a new South African exchange to compete with the existing Johannesburg Stock Exchange (JSE). 

It aimed to create an exchange that was more efficient than the JSE with lower fees for investors to trade. 

A2X was awarded a licence to operate an exchange by the Financial Sector Conduct Authority (FSCA) on 6 April 2017. 

On 6 October 2017, A2X debuted with three listings – African Rainbow Capital, Peregrine Holdings and Coronation Fund Managers – with a combined market cap of R14 billion.

The stock exchange now boasts 183 securities with a combined market cap of around R9 trillion.

A2X CEO Kevin Brady told Business Day TV that the stock exchange has grown rapidly over the past year, as it has listed over 90 companies in 2023.

The latest company to list on the exchange is Vodacom, South Africa’s largest mobile operations. With this listing, A2X now has 31 of the top 40 JSE-listed companies on the exchange.

A2X also has 63 exchange-traded funds (ETF) listed, with representation from all the country’s main ETF issuers like Satrix, Sygnia and OneVest, he said.

Brady said this strong growth comes down to two aspects – brand recognition and optimisation of its process.

“At the end of last year, we hit a turning point where the brand and the knowledge around A2X made it easier for us to get more companies,” he explained.

“And then, secondly, we also tweaked our process in terms of how we approach companies, using the sponsor more aggressively, and that has worked well for us.”

Despite this growth, he said it has been a challenging year for capital markets, particularly in South Africa.

“We’ve seen headwinds. I think the two big ones are ongoing delistings from the incumbent [the JSE], and then we’ve also seen quite a decline in activity,” he said.

The JSE – Africa’s largest stock exchange – has seen a spate of delistings over the past few years, with over 20 companies delisting from the exchange in 2022 alone. 

The number of companies listed on the bourse has dropped by more than half over the past 30 years. 

In addition, Brady said A2X is down around 10% in terms of trading activity year-to-date. However, he said a lot is happening behind the scenes to try and attract new listings. 

“I know the incumbent’s doing a lot; we’re doing a lot. So, hopefully, we can turn this trend around, and I think it probably is partly cyclical.”

Saving the JSE

AmaranthCX director Paul Miller recently told Kaya Biz that the declining number of listings on the JSE poses a serious threat to South Africa’s markets and the economy.

He explained that the problem is not that the JSE will eventually no longer have any listed companies if this trend continues.

The top 100 companies will always be there, but the country is on a trajectory that will see only 100 companies listed on the JSE.

This means that, in the next ten years, South Africa will go from a market that had 800 companies 30 years ago to a market with only 100 companies.

This not only limits South African investors’ options but also affects the country’s pension funds.

In addition, Miller said South Africa has not seen significant primary capital raising in years. 

He said the country has not seen a significant public offer since 2012, and the last true initial public offering (IPO) was Telkom in 2003.

While A2X makes it less expensive for companies to offer their securities on an alternative platform, Miller said the exchange will not solve this problem.

To have a secondary listing on A2X, there are no costs for a company, and they will often list on the exchange to support their shareholders by giving them the choice to transact in an alternative venue, Brady explained. 

A2X also offers much lower exchange fees, around 50% lower than the JSE, he said. This allows companies to attract additional liquidity and narrow spreads. 

However, Miller said A2X is only licensed to take secondary listings from the two primary stock exchanges, i.e. the JSE and the Cape Town Stock Exchange. 

A2X also explicitly does not do primary capital raisings. 

“So, it doesn’t help us solve the problem of new listings in the sense of new companies coming to market,” he said. “All it does is allow secondary listings of companies that are listed on other stock exchanges.”

While this is a good business strategy and helps improve the efficiency and costs in the market, it does not address the root of the problem.

“What nobody has cracked is how do we go back to a situation where an entrepreneur or a group of entrepreneurs can raise primary capital in the public markets to build something new, not spin off a company or create a portfolio of properties,” he said. 

“Where’s the funding for growing entrepreneurs? It’s certainly not coming from our public markets.” 

He said South Africa has a public capital market that “punches above the weight” of the country’s underlying economy.

“We’ve got the 20th largest public market and the 40th largest economy. So here we have a real gem, a real material advantage for the development of our country,” he said. 

“And I believe our policymakers don’t understand the problem, and they’re allowing it to wither away.”