For over 100 years, the Johannesburg Stock Exchange (JSE) operated as the sole exchange in South Africa, except for a few competitors over the years that either went bust (the Union Exchange in 1951) or got acquired by the JSE (the SA Futures Exchange in 2001), thereby cementing its de facto monopoly on both primary and secondary capital markets across a range of securities, spanning equities, derivatives, and debt markets.
Brokers have therefore predominantly looked to the JSE for the best possible result for clients when trading in securities on behalf of those clients. But the JSE’s monopoly has since been challenged and disrupted again in recent times with the arrival of new competitor exchanges such as A2X Markets, 4AX, ZARX and the Equity Express Securities Exchange (EESE).
This increase in the number of exchanges in the local market involving the same authorised users has the potential to create market fragmentation and could lead to arbitrage, for example, if no comprehensive framework and rules supporting market quality and integrity are introduced, warned the Financial Sector Conduct Authority (FSCA), which rattled the cage last year by publishing a draft “Conduct Standard for Exchanges” proposing new requirements and among them, the best execution rule.
Best execution rule
What the new proposed requirement of best execution simply means is that your broker must, by law, buy or sell your shares on the exchange that has the better price, thereby achieving the best possible result for the client when trading in securities on behalf of that client. The best bid or offer, total trading costs, certainty of execution, speed of execution and several other criteria, would now have to be taken into consideration.
Esta historia es de la edición 21 January 2021 de Finweek English.
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