African capital markets exist in silos, as the various exchanges within the continent are often inaccessible to investors outside their home countries. For example, a South African investor looking to diversify their portfolio outside the Johannesburg stock exchange may find it difficult to invest in the Nigerian stock exchange.
This not only limits investor access to high-growth stocks, it also limits access to capital that has grown by leaps and bounds over the past couple of years. According to reports, major regional exchanges in Africa raised over $ 80 billion in equity capital markets and $ 240 billion in debt capital markets.
Although local retail apps like Bamboo and Chaka offer US and foreign stocks to individual consumers, they are just as constrained as traditional brokers when it comes to helping consumers buy stocks and bonds on different capital markets within Africa. . However, there is one startup that takes a look at the challenge and aims to address it with its cross-border order routing and market data portal: Ghanaian fintech SecondSTAX (Secondary Securities Trading and Aggregation eXchange).
The platform, which will allow broker-dealers, wealth managers, pension funds and institutional investors to access markets outside their own country, announces its launch to the public today. To bolster its efforts, it also raised $ 1.6 million in pre-seed funding from private investors and venture capital firms, including LoftyInc Capital and STEMeIn.
SecondSTAX co-founder and CEO Eugene Tawiah brings immense experience to manage such an ambitious project. In addition to spending more than a decade at Goldman Sachs, he has held a variety of consulting and technology jobs for companies in the financial services and capital markets.
In 2018, a landmark event transformed his journey into building SecondSTAX. That was the year that MTN Ghana, a local telecom operator, went public in the West African country after raising about $ 237 million. “I was chatting with the managers of the trading desks and there was a feeling that during the MTN IPO, even if one had a lot of money to invest, if you were not in Accra, there was no way to log in or buy in. that IPO, ”Tawiah told TechCrunch on a call. “And so the concept I had in mind was, if I stayed in Lagos, Nairobi or somewhere else outside of Accra, how can I access these offers and be able to exchange them?”
Tawiah co-founded the company with Duke Lartey. SecondSTAX provides access to debt and equity securities on multiple African bonds and stock exchanges. Likewise, the B2B Capital Markets Infrastructure Platform says it will help investment firms outside of Africa who wish to invest in the continent’s emerging and frontier economies. Investment firms integrated on its platform can also hold assets in various currencies, thereby reducing single currency risk and reducing the volatility of their returns, both in Africa and elsewhere, the fintech said.
Explaining how SecondSTAX works, Tawiah says he thinks of his company’s platform as a layer in a series of concentric circles. The first and second circles are made up of institutional investors from developed and African markets, respectively, interested in investing in various stocks and bonds available on African stock exchanges. SecondSTAX is the third circle and acts as a gateway to the fourth circle, the exchanges.
“There are exchanges where stocks are traded in every country. Nigeria is a silo, same with Ghana, Kenya and South Africa etc. SecondSTAX is effectively the aggregation of these exchanges across the continent. It’s that platform that connects them all together. And then now as an institutional investor like Goldman Sachs in New York, Bank of America in the UK or a boutique in Singapore, they have access to this platform to tap into each of these exchanges. ”
According to the CEO, once the fintech infrastructure is operational, it will consider extending its capabilities to support B2C investment management apps. Retail investors inside and outside Africa will then be able to access and trade cross-border stocks and bonds via white-label apps launched by physical brokers and powered by SecondSTAX or third-party asset technology apps such as Bamboo, HashApp, Robinhood and Hisa.
“We don’t distinguish between brokers; they can be bricks and mortar or startups. Our potential customer base is much larger than one type of institution; as long as the broker has a digital game, they can use our infrastructure to access African exchanges. ”
Fintech, launched in 2020, is looking at the capital markets in Ghana, Kenya, Nigeria, South Africa, Morocco and Egypt. However, at launch, it will launch in the first two, allowing for market order routing for all stocks on the Ghanaian and Kenyan stock exchanges and allowing for cross-border transactions within both capital markets through its partnerships of sponsorship broker.
Tawiah says the funding will see the launch of SecondSTAX in other countries by the end of the year and will carry out the resulting activities, particularly regarding regulatory and licensing issues. There are also plans to increase the size of its staff and strengthen its technology by developing more features requested by its customers. “We expect that in the next 18-24 months, the revenue from these customers will start to become increasingly impactful in terms of their ability to move from startup mode to an effective execution concept that generates significant revenue,” added the administrator. delegate.