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Alternative stock exchange 4AX, a rival to the Johannesburg Stock Exchange (JSE), is rebranding to become the Cape Town Stock Exchange (CTSE). The group will also be relocating to a new head office in Cape Town. 4AX Chief Executive Officer Eugene Booysen joined the BizNews Power Hour to unpack this development with Alec Hogg. According to Booysen, what sets this new stock exchange apart is its focus on SMEs, mid-sized corporates, and small-cap stocks. “We can’t keep paying lip service to SME development; we can’t keep paying lip service to growth in the underlying SA economy. [If] we are serious about targeting growth companies, [if] we are serious about helping entrepreneurs, then we need to bring ourselves down to where the entrepreneurship occurs,” he explains. – Claire Badenhorst
Eugene Booysen on the decision to rebrand and relocate:
It’s been a work in progress [for] the last two years. We had a couple of focus areas – one on the underlying technology, second on the underlying platform, and now we need to work on the underlying brand and that brand recognition. There was a lot of confusion in the market. There were four alternate exchanges – from the JSE’s AltX, A2X, ZAR X and 4AX. I think it created a huge amount of confusion between investors, brokers, and the market, and market participants in general. This gives us a massive opportunity to relaunch, make a huge investment in the brand and more importantly, align with the Mother City and its technology drive and innovation drive.
So we’re moving to the Woodstock Exchange in Woodstock in Cape Town and just fortuitously, as it would have it, right opposite the building is the Stock Exchange Hotel. So it just worked out like that.
On what the Cape Town Stock Exchange has that the Johannesburg Stock Exchange doesn’t:
We focused heavily on our underlying technology, and why did we focus on the technology? I think it’s important that companies become information-based, and secondly, it’s given us a big leg up in terms of being able to cater for the SMEs, mid-sized corporates, small-cap stocks – so anyone with a market capitalisation between R25m and R2bn.
It’s really hard to target them. The cost of a listing is not just what a listing costs you in rands and cents. Everything that happens afterwards in terms of transparency, disclosures, virtual AGMs, managing shareholders, the additional loads related to disclosures and audit requirements, and how you report. The exchange has been set up to help you through that listing process, help underlying sponsors – and JSE sponsors take you through it – and more importantly, we have our registry business so we can handhold you through all those additional disclosure requirements. We think with that we can save you a huge amount of money in terms of cost, risk, time, and complexity.
On catering to SMEs and fledgling businesses:
We can’t keep paying lip service to SME development; we can’t keep paying lip service to growth in the underlying SA economy. [If] we are serious about targeting growth companies, [if] we are serious about helping entrepreneurs, then we need to bring ourselves down to where the entrepreneurship occurs. Those companies in that bracket, they’re the ones that [are] driving underlying economic growth, job creation, innovation, [and] manufacturing capacity in the economy. Asset managers always tell me they [are] looking for the underlying growth. I don’t think growth comes at a R250bn counter. Growth comes [from] finding the growth sector in the economy and partnering with it. We want to unleash that sector. We think it’s ripe. We’ve done the market research and analysis. We think it’s a R2trn market sector and right now, only 15% of that is being covered by the JSE.
On streamlining the process to get to market:
We’ve looked long and hard at our underlying listing rules. We’ve tried to make them really friendly for underlying issues, but at the same time keeping all the underlying investor protections in place. We’ve got a seamless process to onboard sponsors and listing agents, as we call them, that can handhold their clients through that underlying process, and we’ve got fairly well laid out mechanisms to deal with the different classes of companies and structures and in terms of how we can emancipate them for that listing. More importantly, that listing is not just equity – we’re able to list your debt, and we have the unlisted debt marketplace. So there’s three tiers in the capital formation that we are able to help you with. So not just listing your equity but potentially listing your debt and as a last resort, even getting your unlisted debt away, [so] that we can hopefully reduce the underlying cost of capital.
On the cost of listing:
It’s 0.1% of your market capitalisation. It’s approximately a third of what’s currently being charged by the JSE.
It’s not a lot at all. So you’re talking R25,000 to get yourself through the door. There’s certain documentary components, and we’ve got Cape Town Stock Exchange Capital Solutions that can take you through a digital process to onboard your company, take you through the complexity associated with getting yourself ready for a listing and also reducing the complexity in terms of your discussion with your issuer agent or with your sponsor so that most of the information is already pre-prepared, and at a much lower cost the listing agent and sponsor can get you through the real technicalities of getting ready for a listing – the resolutions that need to be passed. So that process, we learnt a lot from how to take unlisted debt to the marketplace, what happens in credit scoring processes, and we’ve now applied that to digital direct listing.
On the running costs to keeping your listing going:
So you still have certain of the ancillary listing costs and in terms of Competition Commission requirements and there are also some additional requirements in terms of your auditors, that they may charge you slightly, marginally higher related to that listing. But we’ve got the registry business. Our registry business was set up since inception. We’ve got nine JSE-listed companies that also make use of those services now. That business helps you manage your underlying shareholder register – your shareholders. It takes you through all your underlying governance disclosure requirements. We can even help you with your AGMs, help you with your board meetings, your minuting requirements, any of your transfer secretarial activity, and more importantly, we can even host your underlying virtual AGMs, proxy solicitation, online voting and E-voting. Numerous JSE-listed companies have used those services over the past year. We’ve had no issues with our underlying virtual AGMs and those costs are at a significantly lower cost than what exists in the marketplace, and we manage those registers at a fraction of the cost and it’s all integrated into the service.
On how it’s been received by Cape Town:
There are a couple of things that happen. I think, first of all, everyone sits back, rather, with shock and amazement and wonders why no one ever thought of it. I think that’s the first thing that strikes them. Secondly, they entertain the possibility that it’s a gimmick but it’s not; there’s some real science behind why we chose Cape Town Stock Exchange as the name and then you hit the nail on the head, Alec. They’ve been massively supportive. The Western Cape government, Wesgro as an organisation, and the City of Cape Town have really gone out of their way to accommodate us and allow us to achieve this in a fairly short period of time.
On moving to Cape Town and what the JSE thinks:
So I don’t know what the JSE thinks about it. Obviously, we are quite aware of being pulled into this semigration debate. I’ve been in Gauteng for almost 50 years and I’m fairly comfortable here, but for us, it’s a natural progression for the business. It just made all the underlying commercial sense and just the reception and the uptake related to issues and our existing clients just reinforces that. We think it’s the right move.
On why they created this exchange:
If South Africa is serious about growth, if Africa is serious about growth, we have to bring our economies to the point where they become information-based. That’s not just what we’re doing in terms of the companies, what we’re doing in terms of skills development, etc. and the policy environment itself has to catch up to that underlying information-based economy as well. I think this is the first step in terms of that direction. The second thing is, you have to get a digital-first mindset. Can you codify everything that you’re doing? And then lastly, it’s easy to lose sight of the underlying client, and I think for ourselves, it’s been two years of focusing on the digital, focusing on the operations, and this has now given us the opportunity where we can really go out there and focus on the client as we launch the exchange.
But people have often asked me why the exchange? When we put the team together in November 2019, we looked at an underlying exchange and actually tried to answer the question, could we build investment banking 4.0? We saw what was happening in retail banking. We saw what was happening in commercial banking and we said, well, why can’t the same level of disruption occur in investment banking? And what was the platform that could do it? And we looked to exchanges and we thought, you know what, exchange already provides the platform for trading securities. You’re already doing the underlying betting for companies. They’re looking to raise underlying capital, funding, and unlisted debt, and more importantly, you’re managing all their disclosure and you’re managing their shareholders. Could you create the technology backbone that allowed you to release this investment banking 4.0 on the market? For us, that’s what Cape Town Stock Exchange is. It’s investment banking 4.0. Fast forward five years, we think this is how investment banks are operating.
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