This month marks a year since the Competition Commission referred A2X’s complaint against the JSE to the Competition Tribunal, after a three-year investigation. Here is a short update on where things stand
What the complaint is about
For exchange competition to work, trading on A2X needs to be as seamless and practical for brokers as trading on the JSE. Today it isn’t, because of three post-trade barriers:
• Single contract note: brokers can consolidate cross-market trades into a single contract note through the JSE’s matched principal trade process, but the JSE has made the reverse matched principal trade process for the creation of a single contract note on A2X unnecessarily complex and costly to use, rendering it unworkable in practice.
• Off-book trades: brokers consolidate on-book (central order book trade) and off-book (report only) trades executed on the JSE into a single contract note, but if the off-book trades were executed on A2X, they are precluded from a single contract note process.
• BDA: brokers must use the JSE-owned BDA system, which is mandatory; however, A2X is blocked from accessing critical position and status data recorded on the BDA, resulting in the risk management process having to be run without access to this information, with the consequence of duplicating the pull on brokers’ capital and creating an additional friction point to execute on A2X.
Why it matters
Competition between exchanges lowers trading costs, improves liquidity and drives innovation. With around R27bn traded in South African equities daily, transaction costs have a real impact on investor returns and brokers’ cost structures.
A2X has seen the effect first-hand. Our market share stayed below 1% until a working mechanism for a single contract note was finally enacted in early 2023. It has since grown to 6–7% of continuous trade in A2X’s universe, but that is still well short of leading alternative exchanges internationally, where these barriers do not exist. Cboe Europe, for example, accounts for around 26% of trading, by notional value, in UK stocks.
Removing the remaining post-trade barriers will bring exchange competition in South Africa closer to a level playing field, allowing investors and brokers to realise more of the benefits.
What the Commission found
The Commission concluded that our complaint has merit. It considers the JSE dominant and alleges that it has abused that dominance through exclusionary conduct since at least 2017.
The Commission is asking the Tribunal to declare the JSE’s conduct unlawful, to require changes to the JSE’s rules and practices to remove these post-trade barriers, and to impose a penalty of up to 10% of the JSE’s South African turnover. The JSE denies the allegations.
Where to from here
The Tribunal has yet to rule, and the barriers remain in place. Until they are removed, brokers and their clients carry costs that a competitive market would not impose. We remain committed to working with all stakeholders to resolve this as soon as possible, and we will keep you updated as the matter progresses.