On 6 October 2018, A2X the competitor exchange to the JSE’s 130 year monopoly turned one. CEO of the exchange, Kevin Brady, has called on brokers to get their clients the best deal. The introduction of MIFID I and II in Europe has brought the concept of ‘best execution’ into sharp focus. The directive provides that, “an investment firm must take all sufficient steps to obtain the best possible results for its clients when executing a client order.”
While similar South African regulation is not yet in place, “A game changer is that there is now more than one venue where shares can be executed and the moral onus is on the broker to do this. Brokers should be looking across markets to be sure that they are achieving best execution for their clients,” he explains.
A2X was launched as a secondary exchange with the aim of creating a fairer and more efficient market place. This has been done by introducing competition and by being a lower cost alternative platform on which to transact. A year after its launch, A2X has eleven listed companies with a market cap of R275.4 billion (and nine approved brokers that make up over 50% of market activity.
Brady says a hurdle to be overcome is that the infrastructure of most brokers has been designed for a single exchange and that the transition to a dual venue environment takes time and focus for broking firms. “We know that breaking 130-year-old habits is difficult but unless this investment is made and firms can trade across venues it will become increasingly difficult for brokers to convince their clients that they have taken all reasonable steps to achieve the best possible result. If you aren’t looking across markets, how can you be sure you are achieving best execution for your clients? Fortunately, this process is underway at many broking firms,” says Brady.
The A2X pipeline of issuers remains healthy and trade is growing sharply as the industry adapts to the opportunity of having a lower cost alternative platform.
Trade is growing
A2X achieved a number of new record trade days over the past few months with a particularly strong September, where the total value traded jumped five times when compared to the previous month. The steady climb in activity levels is supported by an increase in both product on A2X as well as the ongoing investment from brokers in their infrastructure to allow them to trade more effectively across markets. Brady states, “As more brokers come on-line, we anticipate that activity levels will continue to grow steadily.”
Increased liquidity for issuers
Liquidity is a key factor for listed companies and touted as one of the reasons for pursuing listings on primary and secondary exchanges. A2X has created the A2X Market Quality Map to visually illustrate the quality of the market.
It considers the quality of the market by assessing the price discovery process in terms of three criteria: liquidity available at the national best bid and offer by market (NBBO); the price spread as measured by the difference between the best bid and the best offer by market; and time spent at the NBBO by market.
Brady says that the Market Quality Map is consistent with international experience. “Reducing the cost of transacting has a positive impact on the quality of the market by increasing available liquidity at the NBBO and reducing price spreads,” he says.
A2X real time data is available via Bloomberg, Iress and Reuters, as well as on its website.