The recent announcement of the imminent opening of a rival stock exchange to the Johannesburg Stock Exchange (JSE) caused considerable media excitement. It is indeed a historic development in South Africa’s economic history and is to be welcomed, as competition often brings new thinking that benefits customers.
But to claim, as commentators have, that the new ZAR X will be the first competition for the JSE since its establishment in 1887 is simply not true. The JSE has been the country’s sole stock exchange for only the past 58 years – since 1958 – and has known rivalry in different forms before.
The JSE is merely the oldest (and currently sole) surviving stock exchange in South Africa. It commenced with trading operations on November 8 1887. With its current market capitalisation of more than US$150 billion, the JSE is by far the largest stock exchange on the continent.
A number of stock exchanges existed before 1958. Some were established before the unification of South Africa in 1910 and reflected the economic development of various parts of the country. They were all established with the same objectives in mind: to facilitate the attraction of investment capital and to ensure a trading platform for the holding of investments in business ventures. These objectives have not changed much over the ensuing years, although stock exchanges are much better regulated today.
The first was the Kimberley Royal Stock Exchange, which opened on February 2 1881 in the wake of the diamond rush. This was subsequently overtaken by a gold rush to the Witwatersrand. The Kimberley stock exchange closed as Johannesburg and the JSE grew in economic importance.
Another local operation was opened in the north-eastern town of Barberton following the 1880s gold rush in the region. This exchange closed when gold mining activities in the region waned. It is of some historic interest to note that the walls of the second building that housed Barberton’s stock exchange are still standing.
A stock exchange was also established in Cape Town and commenced trading on May 3 1901. In this instance the stock exchange was established in response to trading disruptions owing to the Anglo-Boer War. When the war ended a year later the focus returned to the JSE and the Cape Town exchange was subsequently closed.
Johannesburg also saw the establishment of a stock exchange competing with the JSE, with the formation of the Union Exchange in 1933. The Union Exchange was closed by the South African government in 1958 and the listings of companies trading on that exchange were transferred to the JSE. However, not all the companies transferred met the listings requirements of the JSE. Some companies were allowed to trade only on a “secondary” exchange with less stringent listing requirements, akin to the current Alt X arrangement.
What the future holds
It is too early to predict the outcome of the future rivalry between the JSE and ZAR X. Two stock exchanges increase the opportunities for South African companies to list, but the real rivalry will only start when companies elect to list on both the JSE and the ZAR X. Dual listings of the same company on two stock exchanges in South Africa will allow investors real choice in deciding where to trade. Such decisions will be determined by aspects such as efficiency, cost and risk. An interesting time awaits South African investors if the ZAR X is successfully launched and succeeds in establishing itself as a real rival to the JSE.
Stock exchange rivalry is something seen in other countries, for instance in developed economies such as Germany and the US, and in emerging economies like Brazil and Chile. More than one stock exchange in a country offers investors choice and rivalry puts a limit on the ability of a monopoly stock exchange to charge inflated prices for trading and settlement services.
The establishment of ZAR X is therefore a very welcome development, particularly if it contributes to the broadening of investment in the economy and reduces the cost of investment services for investors.