Africa-Press – South-Africa. South Africa’s financial regulator has cancelled ZAR X’s exchange licence, saying there has been “prolonged noncompliance” by the trading platform.
“The cancellation of ZAR X’s licence follows its prolonged noncompliance with section 8(1)(a) of the Financial Markets Act,” wrote the Financial Sector Conduct Authority, adding that this part of the cct related to the liquidity and capital adequacy requirements of an exchange.
The regulator ordered ZAR X to immediately cease all business of an exchange and not trade any securities or accept new listings anymore. It also needs to facilitate the delisting of all securities on its platform within 14 days.
ZAR X launched in 2017 as an alternative foreign exchange to the JSE. It broke into the scene when competition against the JSE – which didn’t exist for over five decades – started coming from different angles. Equity Express Securities Exchange and African Rainbow Capital-backed A2X also respectively launched in September and October of that same year. 4 Africa Exchange (4AX) had launched a year earlier, although it only commenced operations in March 2017.
However ZAR X struggled to attract prominent listings like the other alternative exchanges. It only had seven listed securities in late 2021. Its website is no longer live to see if any of those companies left after its woes began.
When the government started providing tax incentives to people who wanted to invest in Section 12J Venture Capital Companies, ZAR X positioned itself as the go-to exchange.
But then, the SA Revenue Services pulled the plug on Section 12J incentives in June 2021. And ZAR X’s situation worsened around the same time.
The FSCA suspended the exchange’s licence in August 2021, citing concerns about its liquidity and capital adequacy.
But ZAR X blamed its biggest shareholder at the time, the Public Investment Corporation (PIC), saying that it stalled a “significant equity transaction that could have changed its financial situation around”. The PIC denied the allegation.
ZAR X said the FSCA’s latest decision was “disappointing” and was a significant setback to advancing financial inclusion and addressing the structural shortcomings present in SA’s capital markets.
The company pointed out that it facilitated the trading and real-time settlement of transactions conducted through its exchange without a single failure in all the years of its operation, and investor assets were “never at risk”. It said that because investors held their assets directly in their own names, its model posed minimal risk to investors and the market, despite its liquidity and capital adequacy challenges.
“ZAR X recognises that FSCA has been patient in affording ZAR X time to raise the additional capital required. The continued suspension of the licence would, however, not expose the market or investors to any additional risk,” the company said in a statement.
It said that the timing of the cancellation could not be more unfortunate because a prospective investor was prepared to put in the requisite capital this week. It said it had already concluded full due diligence on that deal.
The exchange said the impact of the cancellation of the licence on the transaction is not known at this stage.
“In view of the decision of FSCA and its timing, the board of ZAR X will consider the way forward. Any decision taken by the board will be in the best interests of all ZAR X stakeholders. All affected parties will be kept updated,” added the exchange.
*Editor’s note: This story has been updated to include ZAR X’s comments on the FSCA’s decision.
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