PRINT HEAD: Bully or mentor: can the JSE play fair?
It seems churlish, even scandalous, for the JSE — the largest stock exchange in Africa — to stifle efforts by smaller rival A2X to run a competitive and viable secondary equities market.
But that’s exactly what the Competition Commission suggests. If the Competition Tribunal concurs, the financial and reputational repercussions for the JSE will be quite nasty.
Matters centre on a complaint from A2X, which offers a secondary market in a swathe of JSE-listed stocks, that the JSE is abusing its dominant market position by engaging in exclusionary conduct through the use of its broker dealer accounting (BDA) system and matched principal trade type.
The matter might take a couple of years to come to finality, with the JSE denying the allegations in “the strongest possible terms”. But in the interim, the proposed penalty on the JSE would probably need reflection as a contingent liability in the next set of financial statements. It’s a fair number at a proposed 10% of annual revenue.
With the A2X having to make mandatory use of the BDA to offer trades in JSE-listed stocks, the JSE effectively holds great influence over the smaller stock exchange’s current business model. Matters such as the JSE refusing to make the BDA system sufficiently interoperable with A2X systems would understandably be a major frustration.
It is significant that the Competition Commission argued that the JSE’s exclusionary tactics hampered stockbrokers’ willingness and ability to trade on A2X. That will surely get sympathy …
Seeing matters from the JSE’s point of view: it can’t be great having a competitor, albeit a relatively small one, taking market share by piggybacking on an existing and well-established equity market. That said, the JSE itself offers secondary markets in global shares listed on other international bourses.
A2X trades almost exclusively in JSE stocks, save for a single London-listed counter and one from the UK’s Aquis market, as well as a handful on the Cape Town Stock Exchange (CTSE). This is different from other smaller exchanges in South Africa, like the CTSE (a fair smattering of small-cap counters) and the Integrated Exchange (BEE vehicles).
The rival exchanges, so far, have not made huge inroads. By the JSE’s own reckoning, as per the last interim presentation, it controls between 95% and 98% of all share trading.
Still, on paper, A2X holds the high ground in trying to offer more cost-effective share trading — a potential boon for professional investors. And it’s slowly catching on. Back in 2018 the notional value of continuous trade in the A2X-listed universe was a negligible fraction. This year that notional value has grown to a more noticeable level close to 8%, with the majority of large- and mid-cap stocks on the JSE now available for trade on A2X. Trades in individual large-cap stocks — as detailed every fortnight by this magazine — are sometimes impressive, occasionally dominant.
There have been issues. A2X was rapped over the knuckles for allowing trade in certain JSE listings via an “opt-out” model without these counters being subjected to application processes stipulated by the Financial Markets Act and A2X’s listing requirements.
The JSE has every right to defend its turf and has done so with much success. But giving up some wiggle room in equity trading is not putting the business model at any great risk — not with the JSE generating revenue across more than a dozen clusters, several larger and growing faster than the BDA hub.
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