A securities exchange is a marketplace which brings potential buyers and sellers of various securities such as shares, derivatives, bonds and other financial instruments together for trade.
In South Africa a securities exchange must be licensed under the Financial Markets Act section 9 which details out the requirements which a potential exchange must meet for it to operate as a licensed exchange. These requirements are prescribed in detail and the license application process is overseen by the FSCA.
The Johannesburg Stock Exchange (JSE) has been operating as the only exchange in South Africa for a long time with minimum to no competition. The JSE kept its dominance and remaining as a sole licensed exchange by acquiring smaller licensed exchanges in the market resulting in the elimination of competition. During 2012, with the support of the Financial Services Board (FSB) which isnow called The Financial Sector Conduct Authority (FSCA), The Securities Services Act was revised and gave birth to the Financial Market Act (FMA). Consistent with international trends and globalization, the FMA promotes international and domestic competitiveness. The FMA empowers the FSCA to regulate in a way that provides an appropriate balance between the demand of different market participants and their model resulting in a reduction of barriers to entry.
The recent halt in trading on the JSE which resulted in the exchange opening for trade at 13:30 and opening auction at 14:00 on Wednesday due to large trade volumes and corporate actions showed signs that the JSE struggled with “system issues”. With more securities and stock exchanges, alternative options may be made available to promote efficient markets and provide productive innovation in the market.
Many organizations such as A2X Markets and ZAR X identified this as an opportunity and applied for a licensing. New exchanges facilitate competition, competition eliminates monopolies, consequently, paving the way for exchanges to function in a perfect market (Free market forces). The reduction in trading costs and increased electronic trading capabilities as well as productive innovation in the financial market has been substantial and positive for participants in the markets, furthermore competition improves efficiency in the market.
The FMA aims to ensure that the South African Financial Markets are fair, efficient and transparent, additionally, reduce systematic risk, increase confidence and promote the international and domestic competitiveness of the South African financial markets and of securities services. The exchange license application process is designed in a way that ensures any license granted achieves these objectives. With the rise of license applications and approvals, these objectives are achieved, making South African financial markets a safer and better place of trade.
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