It’s official. The Johannesburg Stock Exchange (JSE) is no longer the only game in town. ZAR X announced on Wednesday that the Financial Services Board has granted it a stock exchange licence that enables the company to operate as such, providing a cheaper alternative to investors and companies looking to raise capital.

ZAR X CEO Etienne Nel, said it is a momentous occasion for the inclusion of lower-income individuals who otherwise have limited opportunities to participate in South Africa’s equities investment landscape.

“The JSE has a very complex fee structure,” said Nel. “Maintenance with a listing on the JSE is expensive. We’ve tried to reduce the compliance. As a ballpark figure, listing on ZAR X could be about 80% cheaper [than listing on the JSE].”

A big cost advantage for investors is that there will be no custody fees. These, according to Nel, are fees paid by investors towards brokers who execute trades on their behalf. Although there will be brokers on the ZAR X, investors will not have to execute trades directly through them, but can instead log their trades via a call centre, online or through a mobile app that will soon be made available.

“[Say] you are starting out and all you have is R10 000 to invest on the JSE, you would need a broker, who charges you a custody fee of R85/month — this means almost 10% of your whole portfolio wiped out in a year. With us you can save whatever you have without having to incur fees to execute the trades,” said Nel.

The primary focus of the ZAR X will be the restricted market, which is a formalised version of previous over-the-counter platforms for the trading of broad-based black economic empowerment shares and other securities that can only be bought and sold within a limited marketplace where issuers require some control over the liquidity in their shares.

“We already have a number of companies that have indicated [that they’d like to list]. The smallest company is going to have a market cap of R200m. At this stage, the largest is about R3bn, but there are many people calling in so that number could change quite quickly,” Nel explained.

But there will also be an investment products market — a platform for the trading of structured products and preference shares — and a main board for company listings, which will have compliance documentation significantly reduced as ZAR X has adopted a principles-based dispensation as opposed to a rules-based approach.

There will be certain things that a company must do and others that it may do in order to list. Certain things, like having an auditor, will be non-negotiable, while others will be at the discretion of the ZAR X listing committee.

“For example, if you set up a BEE special purpose vehicle (SPV), you don’t have to have a remuneration committee. The only asset that that they usually have is some listed company’s share and the board [for that SPV] will work usually for free, so it would make little sense, and we’re not going to insist on [having a remuneration committee].”

Virtual platform

ZAR X’s physical offices will be in Bryanston. However, there will not be a central location for the market itself. As far as trading goes, investors will be able to monitor the performances of their shares on the company’s website.

Says Nel in ZAR X’s press release: “The emergence of the ZAR X stock exchange is a signal that the rigid structures of the past are being dismantled, helping to clear the way for new entrants to the formal economy, especially black investors and entrepreneurs who are eager to make a bigger contribution to job creation and wealth generation.”

JSE CEO Nicky Newton-King said that although she hasn’t been able to interrogate the ZAR X offering, she is fully confident in the JSE’s willingness and ability to compete.

“The South African financial landscape is highly regarded, both locally and internationally,” she said. “This new exchange introduces new level of complexity, but it will be interesting to see how both the clients and regulators navigate this new era.”