THE FINANCIAL Sector Conduct Authority (FSCA) yesterday suspended the exchange licence of ZAR X, effective from late Friday afternoon, due to the exchange not meeting liquidity and capital adequacy requirements.
ZAR X trades the listed stocks of Agribel group, Dale Capital Group, Orion Real Estate, Runway Property Group, Senwes, Transformational Investment Portfolio One, and TWK Investments, its website showed.
Etienne Nel, co-founder and chief executive of the exchange said that the timing of the suspension was unfortunate.
However, the exchange considered the suspension to be temporary and it posed no risk to issuers or investors who held their assets in their own name directly at Strate.
He said ZAR X had lodged an appeal against the FSCA decision.
FSCA commissioner Unathi Kamlana said in a statement: “We don’t take this regulatory action lightly, given its impact.
“Our view, however, is that this is a necessary step to safeguard market integrity and the interest of issuers and the broader investing public.”
He said ZAR X was allowed to give effect to transactions in progress or otherwise not finalised at the date of suspension, but could not allow further trading or accept new issuers to its list.
The suspension would remain effective until ZAR X had rectified its non-compliance with the capital adequacy requirements to the satisfaction of the FSCA and the Prudential Authority, in which case the suspension may be lifted, or the FSCA made a final decision on the cancellation of ZAR X’s exchange licence.
Conditions imposed with the suspension included to inform all affected persons, including issuers on its exchange, users of its exchange, investors and other stakeholders that its licence had been suspended, and that the exchange provide the FSCA with weekly progress reports relating to its capital adequacy and liquidity requirements.
The FSCA intended to proceed, three months after the date of suspension, with the cancellation of ZAR X’s exchange licence should the exchange fail to rectify its non-compliance, the statement said. Nel said ZAR X operated an innovative exchange model that sought to drive financial inclusion and facilitate access to capital.
The regulatory capital requirements prescribe the minimum amount of liquid capital that an exchange must hold, taking into account the business profile of the exchange.
Nel said ZAR X had been in discussions with the regulatory authorities in this regard, and would continue to work with FSCA in the interim to resolve the position.
He said that in December 2020, ZAR X concluded a significant equity transaction with a foreign-based investor to acquire a controlling interest in the exchange.
“The transaction had since stalled due to an inability by our largest shareholder, the PIC (Public Investment Company), to grant formal approval of the transaction due to protracted internal issues and governance processes.
“In view of the action taken by FSCA, the board of ZAR X will proceed to act in the best interests of the company and all stakeholders. In the circumstances, ZAR X is at an advanced stage of negotiation with a number of other prospective investors,” said Nel.
He said ZAR X had a significant pipeline of listings that had been delayed due to the Covid-19 crisis, but “will certainly come to fruition” once the transaction has been concluded.
In 2018, the PIC, on behalf of the Government Employees Pension Fund, bought a 25 percent stake in ZAR X.
BUSINESS REPORT