A (small) rival to the JSE?
Cape Town - Only weeks after the Financial Services Board forced the closure of BJM and PSG's Over-The-Counter (OTC) trading platforms for unlisted shares, the first applicant for a stock exchange licence has emerged.
Milnerton based venture capital specialist Capital Commitments on Wednesday confirmed that their long mooted Saasdaq (SA Association of Securities Dealers Automated Quote System) - an internet-based share trading platform - would bid to keep OTC trading alive by applying for an exchange licence.
Capital Commitments has over the past five years persistently mooted the Saasdaq, which aims to trade shares of companies that are "generally in an earlier growth phase than companies currently listed on the JSE and AltX".
Capital Commitments has apparently invested close to R10m in Saasdaq in the last four years - but the FSB stymied the launch of the platform in 2005 by insisting the backers seek an exchange licence. Saasdaq was previously known as AUSM (African Unlisted Share Market).
Considerable investment
Capital Commitments argued that the recent decision by the FSB to strictly monitor all trading in OTC shares in line with the provisions of the Securities Services Act had created uncertainty in the OTC market.
Craig Jamieson, the co-coordinator of the Saasdaq licence application for Capital Commitments, said considerable capital had been invested in the development of Saasdaq over the past four years.
He said Saasdaq was a viable and tested electronic securities trading platform which was scheduled to launch in March 2006.
"But after consultation with the FSB we opted not to launch, due to the new legislation and pending their licence application."
Accessible to the man in the street
Jamieson said Saasdaq was in the process of finalising its corporate structure. Current regulations governing stock exchanges in SA insist that no single party can hold more than 15% of the shares. Previously Computershare was named as a potential partner in Saasdaq.
"We've developed a trading system which is accessible to the man in the street and for which the requirements for small and medium sized enterprises to participate is a lot less stringent than those of the JSE and AltX."
Jamieson believed it was vital that the OTC market stay alive in SA. "It has been proved worldwide that trading in such securities stimulates economic growth in an expanding entrepreneurial environment. South Africa is no different."
He said there were both businesses and investors who wanted to participate in this market. "We believe we can offer them the best possible means to do so."
Alternative to JSE?
Jamieson said companies affected by the FSB's decision to stop all unlicensed OTC trading were faced with either listing on the JSE "which for all intents and purposes is not their desire" or facilitating in-house trading.
He argued that with an internet-based platform there was a possibility their shares may continue to be traded - provided Saasdaq's licence application was successful.
Whether the Saasdaq can really emerge as a rival or meaningful alternative to the JSE and AltX is debatable at this point. One has to remember that the collective market capitalisation of companies "listed" on BJM and PSG's OTC platforms topped R15bn - and the bulk of the companies listed were established corporates like Venfin, KWV, Pioneer Foods, Clover, Kaap Agri and Senwes.
By Capital Commitments own admission many OTC issuers are generally small to medium sized companies with limited operating history - who do not comply with listing requirements for the JSE or AltX.
Quality of listings
The harsh truth is that many start-up unlisted companies that have been launched with public funding over the last seven years have not been successful. In fact the attrition rate - Askari Mining, Penta Diamonds, Jabulani, Reinet Distillers, SA Organics, MEM, Pirate Snacks, Primary Paints, John Daniel Containers - has been high with genuine success stories not apparent at this stage.
While the Saasdaq trading platform will be welcomed by shareholders in the array of current unlisted start-up projects (Vinguard, Lazeron, APMI Holdings, UG2 Platinum, SunAir, Agave Distillers, WestJewel, GCCS et al) the longer term success of such an exchange will depend heavily on the quality of its listings.
With Saasdaq probably needing to attain critical mass to ensure sufficient returns to fund development costs one does appreciate that Capital Commitments could have a tricky task in ensuring that appropriate quality filters are in place.
News source: www.news24.co.za
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