JSE SA Trade Connect 2024: ‘Without liquidity, our market is dead’

Panellists discussing the future broking model in South Africa unpacked the role that the liquidity landscape, regulation, technology spend, and collaboration will play on its development.

In a panel discussion at the SA Trade Connect conference in Cape Town, South Africa, panellists discussed the outlook of the broking business model, emphasising that South Africa is at a key watershed moment that will determine where the country lands.

As an already established common theme at this year’s conference, the liquidity landscape was noted by Erica Bruce, president of the South African Institute of Stockbrokers (SAIS), as being key to future developments around the number of brokers participating in the region and the way in which they operate.

Bruce argued that South Africa has “its own issues” which have ultimately impacted the market negatively – affecting liquidity, as well as the relevance and interest in South Africa from international investors. “Without liquidity, our market is dead,” she emphasised.

“Everybody talks about listings, but you can’t look at listings in isolation of IPOs. The reality is if you don’t have issuers and you don’t have investors, you don’t have a market. It is imperative that we make sure that whatever we do, we look after those.”

When assessing new initiatives to boost the attractiveness of the region to investors and those looking to list, Bruce emphasised that enforcing regulation must be approached with caution.

“We have to make sure that we aren’t over-regulated. However, regulatorily speaking, the lack of action [in South Africa] has created even bigger challenges for our market and left us behind a lot of the international markets,” she said.

“There is no collaborative blueprint across regulators, or the buy- and sell-side. Everybody is sitting in their own bubble, working in their own spaces and trying to survive. We’re trying to change regulation [in a way] that often does not look at the end-to-end unintended consequences.” 

Panellists also emphasised that a careful look at the South African market and regulation needs to be made to decide if the objective is to become an international broker, competing head-on-head with the internationals, or if the goal to ensure that there is harmonisation in regulation, despite nuances in the South African market.

The trading venue landscape is changing in South Africa. Historically dominated by the JSE, there has been little to no fragmentation and therefore no need for the technology to support local broker connections to multiple exchanges.

New players such as A2X have continued to gain traction in recent years, however, and the potential for additional platforms to enter the market is likely to grow alongside volumes if interest in the region is boosted. 

Amid the potential shift towards a multi exchange environment, a significant technology investment has been required from a lot of brokers within the market and this has impacted the competitive landscape, panellists noted. 

“If you’re a global player, you can invest a huge amount into technology because you have the scale to deploy it globally,” said Matthew Rattray, chief executive of RMB Morgan Stanley. “However, if you’re a single market operator, you rely heavily on vendors to help you and assist you with that. It has become a tech race in terms of getting execution costs as low as possible.” 

Collaboration – as mentioned in several panels today – was highlighted as an important aspect to the future of the broking business model, therefore.  

Panellists pointed out that within the brokerage world, traditionally, practices tend to operate in siloes and firms tend to own everything front-to-back. This has resulted in a severe lack of collaboration between firms. 

With cost optimisation and with regulation changing in terms of how we need to operate, there is an opportunity to come together and see how we partner,” said Nivedna Maharaj, SBS Securities CEO and head of global markets retail investments at Standard Bank. 

As financial institutions, we need to see what we’re good at and what we can work with other third parties to bring to the market. If you don’t change that mindset, we could end up killing the market ourselves.”  

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