Have you ever wondered how the world’s biggest financial centres keep their edge? Think London, New York, or major European hubs. While many factors contribute, one common thread often stands out: they don’t rely on just one stock exchange. Instead, they embrace a multi-exchange environment. This isn’t just a quirk; it’s widely considered international best practice for fostering dynamic, efficient, and investor-friendly capital markets.

But what does this global trend mean for us here in South Africa? As our own market landscape evolves, understanding why multiple exchanges work so well elsewhere offers valuable insights into the future we are building locally. Let’s explore why this model is favoured globally and how South Africa is aligning with this progressive approach.

Learning from the World: The Global Shift Towards Multi-Exchange Markets

For decades, many countries operated with a single, dominant stock exchange. However, starting particularly in the early 2000s, regulators and market participants across the globe recognised the limitations of monopolies. Landmark regulations like MiFID (Markets in Financial Instruments Directive) in Europe and Reg NMS (Regulation National Market System) in the United States actively aimed to break down barriers and encourage competition between trading venues.

Why did they do this? Policymakers and industry leaders realised that healthy competition could unlock significant benefits previously stifled under a single-provider model. They observed that introducing alternative, regulated trading platforms could lead to:

    Increased Innovation: Forcing exchanges to invest in better technology and services.

    Reduced Costs: Creating downward pressure on trading fees.

    Improved Market Quality: Offering more choice and efficiency for executing trades.

Today, it’s standard practice in most developed economies for multiple exchanges and trading venues to operate side-by-side, each regulated and contributing to the overall market ecosystem. This isn’t theory; it’s a proven model delivering results daily.

What Benefits Does Global Best Practice Bring?

So, what exactly are the advantages that make multiple exchanges the preferred structure worldwide? The benefits cascade through the entire financial system.

Driving Innovation and Technology

When exchanges compete for order flow, technology becomes a key battleground. This drives rapid innovation. We see exchanges constantly upgrading their platforms for:

    Lower Latency: Faster execution speed is critical for brokers seeking the best possible price for their clients.

    Higher Capacity: Ensuring the system can handle large volumes without slowdowns, especially during volatile periods.

    Advanced Order Types: Developing sophisticated tools (like Auction on Demand or specific pegged orders) that help traders implement complex strategies and find liquidity more effectively.

This technological arms-race ultimately benefits end-users with more powerful, reliable, and efficient trading tools.

Sharpening Pencils: The Impact on Costs

Competition naturally drives down prices. In the exchange world, this means lower trading fees. Alternative exchanges often leverage leaner operating models and modern technology to offer more attractive pricing structures compared to legacy incumbents. Brokers benefit directly, and crucially, they can pass these savings onto their clients – the investors. Lowering the cost of investing means more capital stays invested and working for the client, enhancing long-term returns. This makes the market more accessible and efficient for everyone.

Enhancing Liquidity and Price Discovery

Some might wonder if having multiple venues splits liquidity, making it harder to trade. While trades do occur across different platforms, modern broking systems use sophisticated Smart Order Routers (SORs). These routers automatically scan all legitimate venues to find the best available price and liquidity for any given order.

Furthermore, having multiple points where buyers and sellers interact actually improves overall price discovery. Competition plays a pivotal role in reducing friction costs and fostering innovation, which in turn attracts more participants and grows the quantum of overall trade activity. More trading data from different regulated sources gives a clearer, more robust picture of the true market value of a share. This transparency benefits all market participants, leading to fairer pricing.

Fostering Resilience and Specialisation

Relying on a single exchange creates a single point of failure. If that exchange experiences technical difficulties, the entire market can grind to a halt. A multi-exchange environment inherently builds resilience. If one venue has an issue, trading can often continue on others, ensuring market continuity.

Additionally, while not always the case, competition can sometimes lead to exchanges developing areas of specialisation, perhaps focusing on specific types of assets or catering to particular market segments, further adding depth to the overall market offering.

Bringing Global Best Practice Home: The South African Context

For a long time, South Africa primarily operated with a single dominant exchange. However, recognising the benefits demonstrated globally, our regulator at the time, The Financial Services Board (FSB), and now jointly the Financial Sector Conduct Authority (FSCA) and Prudential Authority (PA) , paved the way for competition. The licensing of alternative exchanges, including A2X Markets, signals South Africa’s strategic move to align with international best practice.

We are now actively seeing the benefits of this global model taking root locally:

    Innovation: A2X introduced Aquis Exchange’s high-performance technology, prompting broader industry focus on platform capabilities.

    Cost Reduction: We offer significantly lower trading costs, providing tangible savings for the investment chain.

    Enhanced Market Quality: We provide an additional, regulated venue for trading, contributing to overall market data and giving brokers more options to achieve best execution.

A2X operates alongside the JSE, both under the robust oversight of the FSCA and the PA. This regulated, multi-exchange environment mirrors the structures proven effective in leading global markets. We are not just adding a platform; we are contributing to a healthier, more competitive, and ultimately stronger South African capital market ecosystem.

What This Means for You

This evolution impacts everyone involved in the market:

    Brokers: Gain more choice to fulfil best execution duties, access innovative tools, and potentially lower exchange fees.

    Investors: Benefit (often indirectly via their broker) from lower transaction costs, increased liquidity, innovative non-signalling order types, and overall improved market quality.

    Listed Companies: Gain access to an additional regulated platform for their shares to trade, potentially improving liquidity discovery and benefiting from a more competitive environment overall. Importantly, it also gives their shareholders a choice on venues on which to transact.

Embracing the Future of South African Markets

South Africa’s journey towards a multi-exchange environment is a positive step, aligning us with proven global best practices. It fosters a more dynamic, innovative, and cost-effective market for all participants. A2X Markets is committed to playing a key role in this evolution, championing competition and transparency to help build a world-class financial market right here at home. By understanding and embracing this change, we can all contribute to and benefit from a more robust economic future.