Making financial markets inclusive

Economies, the world over it seems, are in a state of serious and constant flux. In Africa, countries in the West and Southern regions in particular, that are still heavily reliant on commodity-based resources to grow their economies have been experiencing a bumpy ride over the last near decade. This was first owing to the ripple effect of the 2008/9 global financial crisis that lead to slowdown in key markets that were important trading partners for these economies – and while China picked up on many of the available trading and investment opportunities at their peak of their growth, the slowdown in China’s economy lowered demand, with the commodity price downswing leading to further trade and economic growth strains on many of these economies.

In South Africa, the country’s highly-praised transition into democracy was established in 1994 and since then, business has been on a determined and prosperous journey of transformation. Now, twenty-three years later, the South African economy has witnessed several down-grades from rating agencies and steadily declining growth rates. Collectively, the influence of fragility in the internal and world economy, has also had a significant impact on foreign direct investment (FDI) – and continues to place businesses operating in South Africa under immense pressure to balance costs versus profits in tougher economic times.

It is against this backdrop that both local and international businesses call for an exchange that will meet the unique needs of a world class African market. This is exactly what 4 Africa Exchange (Pty) Ltd (4AX), a newly licenced, fully-fledged stock exchange (with a full license to trade in all security classes) seeks to provide.

4AX brings innovation that will provide a cost effective and efficient, yet well-regulated alternative exchange for Issuers, Brokers and Investors, alike, through proven, world class technology platforms.

The core mission of 4AX is to enable, broaden and deepen capital markets in South Africa in a fair, efficient and transparent manner. 4AX seeks to attract listings from qualifying issuers in the small to medium cap market with a particular focus on companies with a market capitalisation of between €6m to €500m.

4AX seeks to distinguish itself in the South African market. It brings a unique model to the market which will accommodate those securities that are currently not necessarily catered for on other local exchanges. This model also includes simplified listing and compliance requirements, cost-effective fees, and removal of red-tape, all of which are designed to suit the needs of the mid-size investors.

Additionally, the 4AX infrastructure uses an independent centralised register of beneficial ownership, managed by 4AX Registry. This will greatly assist issuers with validations to verify the restrictions for restricted shares, no minimum trade fees, enhanced market surveillance on a proactive rather than reactive basis and effective information dissemination to shareholders.

This will offer a solution that can be tailored to meet the market’s needs on varying levels, making it more broadly accessible, cost-effective and offering a seamless transition to the regulated trading space. As a medium-sized market cap exchange, 4AX is targeting new ventures, structured products, restricted and OTC schemes and trading across asset classes with various instruments. In addition to the regulatory role and responsibilities of an exchange, 4AX’s objective is to bring both institutional and retail investors together in a digital, disruptive and economically transformative space – thus acting as a real vehicle for change.

Given that there are several challenges that stock exchanges operating within Africa are faced with, 4AX aims to provide the answer.

Firstly, the world of financial jargon, onerous listing processes, and general day-to-day trading and market analysis are concepts that are understood by a small percentage of the general public. Also, access to free relevant listed company information has previously always been challenging; thus, excluding massive fractions of the public from capital markets participation due to lack of knowledge. The 4AX solution aims to provide a valuable, and simplified platform that is user friendly. Enabling shareholders, issuers and investors ease of use, will be achieved through centralising key functions and significantly reducing the number of role-players. This pre-funded model has essentially no counterparty credit and settlement risk, which enables a concomitant material reduction in transaction and settlement costs. 4AX has removed much of the red tape and complexities by simplifying its listing requirements, the sponsor and issuer agent structure and the fee structure.

The second barrier that exchanges are faced with is accessibility, which is why informal trading platforms (known locally as Stokvels) were created in the first place. The 4AX solution to this problem is to leverage disruptive technology on mobile and other platforms. It is but one advantage of starting a new stock exchange at this time of fast-moving digital technology innovations, as it means implementing the latest technology systems that are not only more cost effective – and thereby create vast access for all – but are more powerful and efficient due to the latest technological advances. With mobile devices, the Exchange is able to empower and educate more South Africans to take an active role in trading and thereby create real opportunities for financial inclusion and sustainable economic transformation.

There exists a commercial need for additional competitive licenced exchanges in South Africa – and on the continent. 4AX will not fragment the market or introduce systemic risk, but rather aims to contribute to the development of the country and by extension the continent. 4AX will make financial markets more inclusive by providing a safe and licensed platform that offers easier access, and more product variety to issuers, brokers and investors. The business aims to become a preferred alternative in the market – where its platform, listing requirements, exchange rules and offerings are tailored to meet the needs of issuers and investors (i.e. clients as contemplated in the Financial Markets Act) whose needs may be better served through a different exchange infrastructure.

Exchanges are judged by their ability to generate trade activity and volumes. Established exchanges have become the lowest risk markets because of their track record and reputation as the home of blue chip companies. Access to such exchanges is regulated to mitigate a lot of risk and unsurprisingly buyers and sellers feel more at ease here. This, however, does not mean that newer exchanges have higher risks or consist of lower grade more risky listings. 4AX seeks to change this market perception of stock exchanges and open the door for the world’s best companies, innovators and entrepreneurs, as well as providing easier access into the financial market for more retail investors.

South Africa is a vibrant, growing market with enormous potential – and there is strong appetite for alternative listing and trading platforms; to further develop and deepen South African capital markets, in support of economic transformation by creating access, and in keeping with growing economies around the world. At 4AX, the main aim is to be a vehicle for access for all to financial markets – as a preferred alternative trade and investment partner, for change.

Further information
www.4ax.co.za