African capital markets exist in silos, as various stock exchanges within the continent are often inaccessible to investors outside their home countries. For example, a South African investor who wishes to diversify his portfolio outside of the Johannesburg Stock Exchange may find it difficult to invest in the Nigerian Stock Exchange.
Not only does this limit investors’ access to high growth stocks, it also limits access to capital which has grown by leaps and bounds over the past two years. By reportsAfrica’s major regional stock exchanges have raised over $80 billion in equity capital markets and $240 billion in debt capital markets.
While local retail apps such as Bamboo and Chaka offer US and foreign stocks to individual consumers, they are as limited as traditional brokers when it comes to helping consumers buy stocks and bonds. in different capital markets in Africa. However, there is one startup that takes a look at the challenge and aims to meet it with its cross-border multi-asset order routing and market data portal: Ghanaian fintech SecondSTAX (Secondary Securities Trading and Aggregation eXchange).
The platform, which will allow brokers, asset managers, pension funds and institutional investors to access markets outside their own countries, announces its public launch today. To bolster his efforts, he also raised $1.6 million in pre-seed funding from private investors and venture capital firms, including LoftyInc Capital, Orbit54, and STEMeIn.
Co-founder and CEO of SecondSTAX Eugene Tawiah brings immense experience to carry out such an ambitious project. In addition to spending more than a decade at Goldman Sachs, he held various consulting and technology roles for financial services and capital markets companies.
In 2018, a milestone event changed its course in building SecondSTAX. It was the year that MTN Ghana, a local telecommunications operator, went public in the West African country. after raising approximately $237 million. “I was having conversations with the heads of the trading desks and I felt like when MTN went IPO, even though you had a lot of money to invest, if you weren’t in Accra, there was no way to access or buy that IPO,” Tawiah told TechCrunch on a call. “And so the concept I had in mind was, if I was staying in Lagos, Nairobi or another location outside of Accra, how can I access these offers and be able to redeem them?
Tawiah co-founded the company with Duke Lartey. SecondSTAX provides access to debt and equity securities on several African bond and equity markets. Similarly, the B2B capital markets infrastructure platform says it will help investment firms outside of Africa who want 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, whether in Africa or elsewhere, the fintech said.
Breaking down how SecondSTAX works, Tawiah says to think of his company’s platform as one layer in a series of concentric circles. The first and second circles are made up of institutional investors from developed markets and those from Africa, respectively, who wish to invest in various stocks and bonds available on African stock exchanges. SecondSTAX is the third circle and acts as a gateway to the fourth circle, exchanges.
“You have exchanges where securities are traded in each country. Nigeria is a silo, like Ghana, Kenya and South Africa etc. SecondSTAX is actually the aggregation of these exchanges across the continent. It is this 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 company in Singapore, they have access to this platform to touch each of these exchanges.
According to the CEO, once the fintech infrastructure is up and running, it will consider expanding its capabilities to support B2C investment management applications. 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 brick-and-mortar brokers and powered by SecondSTAX or technology-based money management apps. third-party heritage such as Bamboo, HashApp, Robinhood and Hisa.
“We don’t discriminate between brokers; they can be bricks and mortar or startups. Our potential clientele is much broader than just one type of institution; as long as the broker has a digital game, they can use our infrastructure to access African exchanges.
The fintech, launched in 2020, is eyeing capital markets in Ghana, Kenya, Nigeria, South Africa, Morocco and Egypt. However, at launch, it will launch in the former two, allowing the routing of market orders for all stocks on the Ghanaian and Kenyan stock exchanges and enabling cross-border trading in both capital markets through its broker sponsor partnerships.
Tawiah says the funding will see SecondSTAX launch in other countries by the end of the year and carry out the activities that go along with it, particularly around 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 anticipate that over the next 18 to 24 months, revenue from these customers will begin to have an additional impact in terms of being able to move us from start-up mode to an actual operating concept generating meaningful revenue,” added the general manager.