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 looking to diversify their portfolio outside of the Johannesburg Stock Exchange may find it difficult to invest on the Nigerian Stock Exchange.
This not only restricts investors’ access to high-growth securities, but also their access to capital, which has grown by leaps and bounds in recent years. Major regional exchanges in Africa have reportedly raised over US$80 billion in equity capital markets and US$240 billion in debt capital markets.
While local retail apps like Bamboo and Chaka offer US and foreign stocks to individual consumers, they are just as limited as traditional brokers when it comes to helping consumers buy stocks and bonds in various capital markets in Africa. However, there is one startup that has risen to this challenge and aims to address it with its multi-asset cross-border order routing and market data portal: Ghanaian fintech SecondSTAX (Secondary Securities Trading and Aggregation eXchange).
The platform, which will enable broker-dealers, wealth managers, pension funds and institutional investors to access markets outside of their own country, announces its launch to the public today. To amplify its efforts, it has also raised $1.6 million in pre-seed funding from private investors and venture capital firms, including LoftyInc Capital and STEMeIn.
Eugene Tawiah, co-founder and CEO of SecondSTAX brings immense experience to lead such an ambitious project. Alongside more than a decade at Goldman Sachs, he has managed various consulting and technology jobs for companies in the financial services and capital markets sectors.
In 2018, a landmark event tipped his journey to building SecondSTAX. That was the year that MTN Ghana, a local telecoms operator, went public in the West African country after raising about $237 million. “I had discussions with heads of trading desks and felt that during MTN’s IPO, even though you had a lot of money to invest, there was no way to participate or participate in this IPO unless you were in Accra was,” Tawiah told TechCrunch on a call. “And so the concept that I had in mind was that if I stay in Lagos, Nairobi or anywhere outside of Accra, how do I access and trade these offers?”
Tawiah co-founded the company with Duke Lartey. SecondSTAX provides access to debt and equity securities across multiple African bonds and exchanges. Similarly, the B2B capital markets infrastructure platform says it will support investment firms outside of Africa looking to invest in emerging and frontier markets on the continent. Investment firms onboard its platform can also hold assets in different currencies, reducing the risk of a single currency and lowering the volatility of its returns, whether in Africa or elsewhere, the fintech said.
Tawiah explains how SecondSTAX works and says to think of his company’s platform as a layer in a series of concentric circles. The first and second circles consist of developed market and African institutional investors, respectively, who are 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.
“They have stock exchanges where the securities are traded in each country. Nigeria is a silo, so are Ghana, Kenya and South Africa etc. SecondSTAX is effectively the aggregation of these exchanges across the continent. It is this one platform that ties 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 firm in Singapore, they have access to this platform to touch each of these exchanges.”
According to the CEO, once the infrastructure is up and running, the fintech will consider expanding its capabilities to support B2C investment management apps. Retail investors inside and outside of Africa can then access cross-border stocks and bonds via white-label apps launched by brick-and-mortar brokers and powered by SecondSTAX or third-party wealth technology apps such as Bamboo, HashApp, Robinhood and Hisa.
“We do not differentiate between brokers; They can be brick and mortar or startups. Our potential customer base is much broader than one type of institution; As long as the broker has a digital game, they can use our infrastructure to access African exchanges.”
Launched in 2020, the fintech is targeting the capital markets in Ghana, Kenya, Nigeria, South Africa, Morocco and Egypt. However, at launch it will start in the first two, allowing for the routing of market orders for all stocks through the Ghana and Kenya stock exchanges, and enabling cross-border transactions within both capital markets through its sponsorship broker partnerships.
According to Tawiah, the funding will lead to the launch of SecondSTAX in additional countries by the end of the year and the associated activities, particularly with regard to regulatory and licensing issues. There are also plans to increase the headcount and strengthen the technology by developing more features requested by customers. “We anticipate that these clients’ revenues will take increasing impact over the next 18 to 24 months to move us from startup mode to an actual running concept generating significant revenue,” added the Chief Executive.