New stock exchange set to launch with T+0

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From the outset ZAR X will be offering same-day or T+0 settlement, with enhanced security as transactions are pre-funded.

This is significantly shorter than the JSE, which recently moved from a six-day settlement time (T+5) to four days (T+3) to come in line with global standards.

Traditionally, South Africa’s long-established stock exchange has offered T+5 settlement – a matched trade and settlement with clearing into an investor’s account over a five-day period, says ZAR X chief executive officer, Etienne Nel.

JSE shortens its settlement cycle

According to an article on Moneyweb, the JSE is one of the only exchanges in the world to have still been on a T+5 settlement cycle due to the complexity involved in reducing the cycle – the shift to T+3 will be key in attracting more foreign flows into the local market.

Most international bourses are currently transitioning to T+2, which is in the JSE’s short- to medium-term plans and will be significantly less complex than the jump from T+5 to T+3.

The shorter settlement cycle will reduce systemic and operational risk in the market since it means there are fewer unsettled trades at any point in time, the report says.

Tech cuts through red tape

Technology developed specifically for the new stock exchange is designed to cut costs and red tape while enabling share trading by mobile phone or hand-held device, Nel says.

“A lot of work has gone in since we received conditional approval from the Financial Services Board some months ago. All suspensive conditions have had to be fulfilled to the satisfaction of The Registrar of Securities Services. We submit our final report to the FSB in the coming weeks for final approval prior to going live.”

“We’ve ticked all the boxes and we’re looking forward to opening ZAR X in September, as originally scheduled.”

Cost efficiencies

Simplified processing and fast settlement are achieved without a price premium. In fact, the ZAR X approach cuts fees as:

• It does not have to amortise costs relating to legacy issues.

• Modern technology removes costs associated with people-intensive systems.

• In the listings space, a transition from a rules-based to a principles-based dispensation fosters cost efficiency.

• The need for lengthy compliance documentation is much reduced.

• Cost-efficient focus is achieved by concentrating on equities only, with no short-selling and no trading in futures and derivatives.

Cost efficiencies permit several investor-friendly add-ons, including a free safe custody service, which drives financial inclusion to all South Africans previously excluded from formal investing.

Greater equity ownership

State-of-the-art systems specifically created by ZAR X facilitate trade between the holders of restricted BBBEE shares which are eager to realise value after participation in empowerment structures.

Nel points out: “Listing of restricted shares in the ZAR X space makes it possible for transformed companies to retain or enhance their empowerment profile in perpetuity.”

“This is just one way in which ZAR X contributes to economic transformation.”

Simplified, affordable and accessible share-trading systems – sometimes via cell-phone – has the potential to promote greater equity ownership, particularly among lower-income groups that were previously excluded from full participation in the economy.