How 4AX is Daring To Do What’s Never Been Done Before

Posted on April 3rd, 2017

How 4AX is Daring To Do What's Never Been Done BeforeNo one would accuse the founders of 4 Africa Exchange (4AX) of not being brave or bold.

In 2013, they launched a new stock exchange in South Africa.

The consortium behind this bold step is financial services company with a focus on South Africa, BravuraTrifecta Capital, which provides international business process outsourcing; Intercontinental Trust, an independent fiduciary and corporate services provider based in Mauritius; Capital Markets Brokers, which provides securities brokerage services; an agricultural business, NWK; and Global Environmental Markets (GEM), which provides market operators with electronic exchange trading platforms.

On 4AX’s frontline is CEO, Fariyal Mukaddam, an advocate and commercial law expert.

The team also includes Chichi Maponya of the Maponya Group and former chair of Brand South Africa as well as corporate financier, Stephan van der Walt, director of Pallidus, an investment banking firm and was, according to the company, instrumental in setting up 4AX.

The company, which applied for its license in 2015, set themselves big goals. They aim to transform the industry and change the status quo as well by providing a licenced exchange that is red-tape free, more affordable than the Johannesburg Stock Exchange (JSE) and more accessible to ordinary South Africans.

In September 2016 this, however, came to a crashing halt after three years of building 4AX. They found themselves standing toe-to-toe when the JSE, which had dominated the securities exchange sector in the country for at least half a century, launched an appeal against the granting of 4AX’s licence by the Financial Services Board (FSB), as the stock exchange did not, initially, believe the granting of the licence to 4AX would ‘promote the continuation of the high quality of South Africa’s capital markets’ they said in a press statement after they had withdrawn the appeal in December 2016.

“What we have here will be a game changer for our country and a catalyst for transformation”

In the same statement, Mukaddam said that they recognised that the JSE wanted to ensure that the “integrity of the financial markets continued to be upheld”. However, “as a responsible company ourselves, we recognised this as an opportunity to engage with the JSE, to share insights on our licence application and directly address any concerns the JSE had.”

4AX has been able to surge ahead with their plans and, according to Business Day, the company hopes to begin trading as early as April and has six listings in the pipeline already.

Despite the challenging start, the original goal remains.

“What we have here will be a game changer for our country and a catalyst for transformation,” Mukaddam told the publication.

Mukaddam shares with SME South Africa some of the daunting challenges they have had to overcome and the toll of ‘doing what has never been done before’ in the country.

Our business is modelled on providing a simpler, more cost effective and an efficient listing and trading alternative in the local market –  Transparency, local economic development and affordability remain at the forefront of our business – and we hope to quickly become a force to be reckoned with in the local capital markets, while also being a vehicle for diversity and real economic inclusion that will drive transformative growth and development of South Africa.

From a financial perspective, the most significant hurdle in this market is obtaining the licence – The business must [be compliant with certain regulations in order to get the licence], which means that before being awarded a licence the business must spend money on things like setting up offices, employing staff – and of a certain skills levels. Therefore, whoever you are asking to raise funding from doesn’t know for sure if you will get the licence, or not.

What possibly made this more challenging for us is that because it had never been done in the history of South Africa’s capital markets before, no one knew what the prospects of the licence being granted would be. And while we spent a lot of time with those who have since invested in 4AX, at the time that we were raising funding to comply with the FMA and licence requirements, we had to try convince them that it was a worthwhile exercise.

The uncertainty of some of the requirements can be challenging – While the regulatory framework is complex, the strictness of it is a good thing. At the end of the day the regulations are in place to protect the public, because you don’t want people losing money on the stock exchange and [more so] through unscrupulous dealings.

The challenge with some of the requirements is the uncertainty, chiefly because applicants aren’t always sure of the exact meaning of the law and that these laws have never been tested before – because they’ve never had to work outside of the JSE before.

When it comes to the market, the first challenge is convincing them that we offer something different from the JSE – We have a very competent stock in the JSE, and if we provided the same offering why would the market do business with us over the JSE?

The second challenge is that because we are new, we are also unknown, and people are often afraid of the unknown. Coupled with the fact that our offering is different from the JSE, we need to educate and convince the market that our offering is a legitimate and well-regulated listing and trading alternative.

When we talk about market competition, it is important that we differentiate ourselves from the rest – Some applicants are only for a trading platform and although they are applying for – and if they are successful will receive – a stock exchange licence, their business model is very different from ours, where we are a fully-fledge stock exchange.

See also: Listing on the JSE as an expansion strategy for your business – Everything you need to know

Like any stock exchange we make our revenue through three main sources – these include:

  • The first source is when companies list on the stock exchange – and we charge the company a listing fee for being listed on the exchange. What differentiates us here, however, is not only do we charge a very competitive rate on our listing fees – but we’ve also looked at what other market players are doing and have actively looked at ways that we can reduce the overall cost of compliance when listing as well.
  • The second revenue source is the trading fees we charge to investors and shareholders, but only when they buy or sell on the exchange.
  • Our third source of revenue is from selling data on the exchange. This kind of data will include things like, how a share price has performed – for instance the highest or lowest it’s been over a period of time – which investors and shareholders will use to inform their decisions when buying or selling shares.

South Africa is a vibrant, growing market with enormous potential – We are confident that there’s a strong appetite for an additional licenced exchange to further develop and deepen the capital markets in the country.

That being said, it may not be prudent that such an additional stock exchange be owned by a South African – as it could just as well be owned by an outside entity. However, as we are South Africans and extremely proud to be a part of the sophisticated capital markets in the country – we are just as passionate about ensuring we positively contribute to the country and transform the country’s financial landscape.

Therefore, 4AX seeks to be a truly South African empowered exchange – with the vision of contributing to the country’s economic growth and prosperity by providing an effective marketplace for issuers to raise capital, meet the unique needs of retail investors, whilst attracting institutional trading in securities.