South Africa’s infrastructure may leave much to be desired, but the country’s stock exchange is getting an upgrade. To keep up with growing competition, the Johannesburg Stock Exchange has embarked on a long-term project to gather all of its markets onto a single, faster trading platform and a new clearing system.
The effort comes as ZAR X, the first new South African exchange in more than a century, prepares to open for business in September, blazing a trail for more would-be domestic rivals to the JSE. But CEO Nicky Newton-King isn’t too worried about the competition. “We don’t have a statutory monopoly; nor do we have a divine right to exist,” says Newton-King, 49, who became the JSE’s first female chief executive in 2012. “Therefore it’s important that absolutely everything we do, we do better every day.”
This year marks the 20th anniversary of the JSE closing its trading floor and going fully electronic; with an average daily trading volume of 270 million shares, the largest bourse on the African continent continues to invest for speed. Four years ago it upgraded its equities market with a trading engine developed by Sri Lanka–based MillenniumIT, a branch of the London Stock Exchange Group, that made execution speeds almost 400 times faster.
The exchange is in the process of migrating its derivatives and fixed-income markets onto the MillenniumIT platform, with equity and currency derivatives scheduled to go live next year. Concurrently, each asset class will be shifted onto a new, real-time clearing system developed by Stockholm-based Cinnober Financial Technology. “I think markets that offer less than what their clients are used to in their home countries will struggle to attract the kind of attention they might otherwise,” Newton-King says.
The JSE has also been trying to innovate ahead of potential competitors arising within South Africa’s borders, the Cape Town native adds. ZAR X — the first of several applicants to receive a stock exchange license — has grown out of an over-the-counter trading platform focused on restricted-share schemes, such as those used in South Africa to boost black ownership in companies. It will have little to no overlap with JSE products, at least for now. However, one application waiting in the wings, the 4 Africa Exchange (4AX), plans to go toe to toe with the giant JSE. The main advantage that start-up exchanges have over incumbents is the lack of legacy technology that can drive up costs and slow transaction speeds. For example, ZAR X offers same-day clearing and settlement, whereas the JSE spent the past half year upgrading its systems to shorten its settlement cycle from five days to three, as of July 11. The JSE is also adding block trading facilities to its equities market in September.
“While there isn’t another bricks-and-mortar exchange, we in fact have a vigorous level of competition in almost all of our products,” says Newton-King, who holds a master of laws degree from the University of Cambridge and joined the exchange in 1996 after serving it as an attorney for Johannesburg-based law firm Webber Wentzel.
The JSE competes with local banks for trading currencies and bonds and with global exchanges for dual-listed securities like Belgian megabrewer Anheuser-Busch Inbev, which listed on the JSE in January in anticipation of the completion of its $108 billion takeover of South Africa’s pride and joy, SABMiller.
More competition isn’t the only threat to the JSE’s ability to win the hearts of foreign investors. Scandals around the ruling African National Congress, coupled with slowing growth, have damaged confidence in South Africa and put its credit rating at risk of being cut to junk status in December. In the first five months of this year, the JSE saw 55 billion rand ($3.8 billion) in foreign capital outflows from its equities market, though investors returned at the end of June chasing opportunities to profit from Britain’s decision to leave the European Union.
In March, Newton-King joined Finance Minister Pravin Gordhan on a road show in London in a bid to relieve investors’ concerns over South Africa’s political stability, growth prospects and high income inequality. “Exchanges are at an interesting nexus of the real economy and capital markets,” she says. “On the one hand we have to operate a highly functional world-class capital market, and on the other hand we have to have our eyes very clearly on how we can serve people and help the real economy move forward.”
Follow Jess Delaney on Twitter at @jdelaney_NYC.