Newly licensed stock exchange ZAR X has approached the Competition Commission to investigate whether the JSE’s appeal against its licence amounts to anticompetitive behaviour.

The Financial Services Board (FSB) granted ZAR X a licence to operate a stock exchange in March last year, but the JSE, and more recently another competitor, 4AX, have lodged appeals against the FSB’s decision.

Executive director at ZAR X, Geoff Cook, said the company believes that the JSE’s appeal is an attempt to prevent a real competitor from entering the market. This, they believe, amounts to an abuse of dominance, which is prohibited under section 8 of the Competition Act.

“We don’t believe the whole appeal process has a lot of validity,” Cook said. “We believe it is a delaying tactic designed to frustrate us.”

The Financial Services Appeal Board is due to hear the final appeal against the granting of ZAR X’s licence on Monday and Tuesday next week. Cook says that they expect a ruling within two weeks, and if it is in their favour they are fully ready to begin operating. In the meantime, however, the delay in starting operations has been costly.

“I don’t want to put a number to it, but it has certainly cost us,” Cook said. “We are still carrying the costs but without the ability to earn revenue for the last couple of months. And obviously there is the cost of the legal fees involved. That’s what the process they’ve engaged in is designed to do — to drain financial resources and defocus us.”

The JSE initially launched an urgent appeal to have ZAR X’s licence suspended, but the FSB Appeals Board dismissed this in October last year. The appeals board’s deputy chair, judge LTC Harms, ruled that the JSE failed to show that the JSE itself, the country’s financial system, or investors would suffer any harm of prejudice.

The JSE had also filed an appeal against the granting of a licence to 4AX. However, this was withdrawn after the two parties came to an agreement in December.

This decision, however, only raised further confusion, as it wasn’t clear why the JSE would engage with one potential competitor but not another. The JSE and 4AX also then consolidated their appeals against ZAR X’s licence.

“The Competition Commission did ask us what our views were on this, and our response is that it is a curious position, because the JSE’s objections were more detailed and more voluminous against 4AX than they were against us,” Cook said.

The JSE’s director of capital markets, Donna Nemer, however insisted that the exchange has always welcomed competition. It just believes that this must be on a level playing field.

“In any regulated industry such as mining or electricity provision or anything like that that requires a licence in order to operate, all of the current licensed participants will always want to make sure that new participants are licensed on the same basis,” Nemer said. “That is, philosophically, the approach that we have had.”

She said that the JSE had appealed against ZAR X’s licence because it had not received the information it needed in order to be confident that the new exchange would be operating on the same terms as it does.

However, Nemer could not explain why the JSE was willing and able to engage with 4AX to get enough information to satisfy itself about that exchange, but not with ZAR X. The JSE only a formal statement that read:

“The JSE met and corresponded with ZAR X to request the information we required to have comfort that all competitors are bound by the same set of rules and are operating in terms of the Financial Markets Act. We received some information, but not the data we needed for this purpose. With the appeal hearing pending, it would not be appropriate to have further conversation with ZAR X at this point.”

The difficulty with this explanation is that JSE’s position with regards to ZAR X and 4AX seem to have been the same, as it was appealing both licences. It is therefore difficult to understand why it could, and did, engage with 4AX to its satisfaction, but refused to do so with ZAR X.

Nemer did however reiterate that the JSE is open to talking to all market participants about what the future market will look like.

“It’s in all of our interests to talk and engage about how we work together as market infrastructure provides to ensure that there is clarity in the market on how we will be operating in a multiple-exchange environment,” she said. “There is a lot at stake here. We have one of the best reputations of any capital market in the world and we proud of that not because the JSE has crafted it, but because everyone in the market has played a role.”