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[Top Story] Many are starting to see the benefits of a secondary listing

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SIMON BROWN: I’m chatting with Kevin Brady, CEO of A2X. Kevin, I appreciate the time, as always. If my memory serves, September last year was the first time you went through R1 billion in value. In fact, you went all the way up to R3 billion-odd. Has that held during 2022?

KEVIN BRADY: You have a very good memory. That is correct. In September last year we set a record. What’s interesting is that we faced the sort of headwinds early in 2022, and that really surrounded an engagement with the regulator and with the incumbent exchange around what we refer to as the ‘two exchanges – one broker’s note’ discussion. But what I’m very encouraged with, although it’s created some headwinds, [is that] it was resolved very quickly, and that unlocked the volume again.

What we found is we had a little bit of a dip … in March/April, and then those volumes kicked up very nicely. And in fact September this year was a new record for us. And yes, we’re seeing our volumes hold nicely above that R3 billion level now.

SIMON BROWN: You talk of ‘two exchanges, one broker note’, and ultimately this comes back to best execution. We’ll get to that in a second. That means I do the trade. In essence, it’s agnostic where it trades and I just get a note from a broker that says I’ve bought a hundred of whatever share.

KEVIN BRADY: That is correct. You’re quite correct. When the broker gets an order, their duty is best execution – get the best result for their client. Ultimately it means buying it where you can get the best price and the appropriate liquidity. It might land up buying across the two markets. And you’re absolutely right, the broker then just provides them with one note saying ‘I’ve achieved best execution’.

So, because of the structure of the market, it does require a degree of interoperability, and I think having overcome that hurdle has been a big step forward for the exchange industry. But it needs to go further. So yes, it’s a good step. There’s a lot more we need to do there, and I think that also bodes well for the future.

SIMON BROWN: You said there’s a lot more you need to do. What’s still on your list of wants?

KEVIN BRADY: Well, around the interoperability I think it’s a bit limited at the moment. So it really is quite niche as to when a broker has that ability to book the single note. We are working with the regulator and with the industry participants to say this needs to be much broader, otherwise what you’re finding is that this is not actually achieving the objective that everyone wants it to achieve.

SIMON BROWN: In essence, there’s the incumbent exchange, and you’re kind of the ground breaker. You’re not setting up the rules as you go along; you’re setting up the processes, sort of in real time. In, I don’t know, five years, 10 years’ time we are going to look at an environment where it’s all smooth. But at this point it’s kind of happening day to day.

KEVIN BRADY: That’s quite correct. So yes, you need to navigate the existing infrastructure and outdated regulation, which does make it particularly difficult. But, having said that, with the support we’ve had from the listing side, from the brokers, from the regulator, we’ve managed to move it forward.

As I say, ultimately we want to be in an environment [where] there’s a level and fair playing field and an efficient growing market.

SIMON BROWN: You mentioned ‘best execution’. I know we have chatted about it, I know it got delayed. Has it rolled out? [Is there] any update on that?

KEVIN BRADY: It hasn’t rolled out, you’re quite right. The last time we saw a draft was back in June 2020. I do think it got kind of tripped up a bit with Covid. We are expecting what they refer to as ‘conduct standards for market infrastructure’ to be released in the first quarter of next year, and our understanding is that will include best execution.

SIMON BROWN: Okay. So it’s on the agenda and it still is going to be coming, in a sense. How many lists do you have these days?

KEVIN BRADY: We’ve had a very good year, actually. We’ve listed 37 securities since the beginning of 2022, adding about R800 billion in combined market cap. That takes us to a total of 93 securities with a combined market cap of around R5.7 trillion.

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But really what’s been wonderful for us is we picked up a lot of top-40 companies; six to be precise. The last one we listed was Woolworths, just a few days ago. We’ve done very well in the Reits sector, and we’ve just picked up some really good names – Truworths, Life Healthcare, Pick n Pay, Nedbank, Remgro, Discovery and Impala.

So we’ve had a very good run and I think it’s been driven by the fact that the more listings we have, the more confidence that creates – and people are really starting to see the benefits of having a secondary listing. That’s filtering through. It never looks easy, but it’s definitely getting easier.

SIMON BROWN: What is that listing process? Are you phoning up the missing companies, are stockbrokers phoning up the missing? Or do you sit back and wait for them to ring you?

KEVIN BRADY: [Chuckling] I look forward to that day, very much so. We’re on the front foot, we’re knocking on the doors, we’re using our contacts and we’re using existing issuers to leverage ourselves into the ones that are not listed already.

So it is knocking on the door, it is convincing the executive of that company of the merits. They then take it to their board for approval. So it’s not an easy process.

But, as I say, what we’re finding is that the confidence is there, the belief is there, the people are seeing the merits of it, and it’s working quite smoothly now.

SIMON BROWN: My sense is the merits are quite strong, particularly if I can get better pricing. We’ve spoken before that better pricing simply comes because of lower fees. Are you able to share some of the concerns? I don’t understand why a listed company would say ‘thanks, but no’, is what I suppose I’m saying.

KEVIN BRADY: Well, yes, that’s a very good question. What we find, actually, is [that] once you get through the door, actually there’s a very high success rate. I think there’s a general perception that when you hear from an exchange it means cost and it means regulation. Once you can get through that, [you can] say, no, we’re a secondary exchange, there’s no cost, there’s no regulation, there’s no risk to you, yet it’s really good for your shareholders.

So a lot of this is education … both the education we put out there [and] word of mouth. But really the biggest thing we confront is we need to educate people to get it through.

Secondly, it’s just a priority thing. So we’ve never had any hard ‘No’ [responses]. We’ve just had ‘Not now’.

SIMON BROWN: ‘Get back to us next year.’ Of course, regulation all happens at the incumbent level, in terms of sense. And all of that happens there. In terms of cost, is there no fee for an issuer to be on your exchange?

KEVIN BRADY: There’s absolutely no fee. There’s no cost to list or to remain listed. Literally, it’s a two-page document. It really just is authority. As you are well aware, in most countries they actually have the alternative-trading model, so you wouldn’t even need the issuer’s authority.

South Africa’s quite unique in that until we change the regulation – and it is coming – we need their authority. So it definitely puts you kind of back a few steps. But, as I say, we’ve got this nice momentum and I think there’s a lot of support for competition. A lot of people are seeing the merits of what A2X has to provide.

SIMON BROWN: We’ll leave it there. That’s Kevin Brady, CEO of A2X. Kevin, I always appreciate the time and the insights.

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