“A CARIBBEAN STOCK EXCHANGE- CHARTING THE WAY FORWARD”
By
– Marlene J. Street-Forrest, General Manager, Jamaica Stock Exchange
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“Very few can argue that this is a new topic or a new debate. In fact the Caribbean Region was one of the first block to seriously consider the advantages that could be derived from a Regional Stock Exchange. The discussion on a Regional Stock Exchange started over 16 years ago with our Prime Ministers. Today we still discuss an activity which is so critical to our existence.
When one speaks of the Exchange and the role of the Regional Stock Exchange, one often hears persons or sectors speak of the differences that exist between countries which prevents the Regional Exchanges. The approach I wish to take today is more utilizing imperical information in order to truly access where we are.
The areas that I wish to focus on be considered are:
q Regional Exchange – A new concept?
q People – Brokers, Investors, Companies
q Supporting Infrastructure – (External – Central Bank, Securities Exchange) (Internal – Depository, Stock Exchange, platforms, Regulations)
q Business Model
q Mindset – Common will
q Relevance – Is it relevant? Is relevance understood
Regional Exchanges – A new concept?
The Region (Caribbean) is not without the examples of other regions that recognized the importance of having a regional market. While many exchanges in Europe operated independently since the 16th century, it is just in recent years, that is, the late 1990’s to early 2000 that concentrated efforts have been made to develop an integrated market place.
This was born out of the advantages that were readily seen and were available to be exploited. Cross-border markets would lend itself to the access of multiple products seamlessly traded on a single platform. While ‘mergers’ between Exchanges in different countries raise many challenges, the most important and seemingly difficult challenge is that o settlement and clearance of securities.
Euronext’s Cearnet was the major important piece of the puzzle to be introduced. “Euronext has created a single market for cash products by making all its listed stocks available on a single trading platform, NSC and clearing through a single system. Further the Central Securities Depositories was a crucial step towards the successful implementation of the Euronext Model and ‘for-profit’ mode of Exchanges factored particularly in the success.
The importance of the move towards integrated market is the increase in liquidity in the market and the endless possibilities of new products, integration and cross-fertilization of knowledge that are accessible through a common market. The development of the capital market should be seen as the development of not only stocks but securities. The broker view therefore is the development of a Regional Securities Exchange. It widens the possibilities of products that are available to include:
q Bills of Exchange
q Stocks
q Derivatives products
q Options & Futures, Warranty
q Bonds and Government Securities
q Mutual Funds
q Commodities
q Real Property Securities
Computerized order-driven platforms as well as advances in telephone services aided the divestment. The new system allowed for the introduction of remote membership, which allowed domestic and foreign brokers to participate. The privatization of man
y companies within ‘member’ countries aided the success. The strategy was bold and decisive.
Let us now examine the Region’s progress
IS AN INTEGRATED STOCK EXCHANGE RELEVANT?
Few market participants can question that the relevance of an integrated or regionally Stock Market in a globalized market are:
(i) The mobilization of regional savings for investments into companies and government activities to assist with longterm projects at a lower cost.
(ii) The creation of an avenue for ordinary citizens to participate in the private sector and share in the wealth
(iii) Providing investors access to a wider pool of companies which can redound to increase liquidity.
However these are the same factors which benefit a domestic capital market. The domestic capital market is as relevant to each country as the Regional Market to the region. The question and the problem is “which is the greater priority”. To date one of the major issues impeding the Regional Market is “the time to look external to my domestic affairs”. ‘Who will do it’ – ‘When’ – Not ‘Why’. The ‘Why’ is understood. The ‘When’ is however critical especially in light of globalization. The financing of economic and social development that is needed in order to compete globally is a priority. Individual domestic market will have a greater challenge but the raising of regional capital could prove advantageous, challenging funds into productive investment.
Brokers, Investors, Companies
There are forty-two (42) companies listed on the JSE. Thirty-six (36) in Trinidad and twenty-four (24) in Barbados and eleven (11) companies that are cross-listed. Consider the impact on the market if investors, brokers were able to access 102 companies? Not to mention a wider array of product offering.
q Cross-border Transactions
q Cross-listed Securities
There are cross-listed securities between Jamaica, Barbados Trinidad & Tobago and Eastern Caribbean. While one cannot definitely conclude that cross-listings have improved the number of stocks traded in listed companies, it is encouraging to note that activities in cross- listed stocks have progressively improved over the time.
Referring to the statistics:
Companies Domiciled in Trinidad
Names of Companies
Date Cross-Listed in Jamaica
Date Cross-Listed In Barbados
Volume At Listing Date
Volume Traded 2005 in Trinidad
Volume Traded 2005 in Jamaica
Ratio of Market Activity
Guardian Holdings Ltd.
Sept. 2000
10,689,915
180,581
1.689%
RBTT Financial Holdings
Nov. 2001
Sept. 1999
34,727,247
1,318,506
3.797%
Trinidad Cement Ltd.
Nov. 1998
8,964,918
392,238
4.375%
Companies Domiciled in Barbados
Names Of Companies
Date Cross-Listed in Jamaica
Date Cross-Listed In Trinidad
Volume At Listing Date
Volume Traded 2005
Volume Traded 2005 in Jamaica
Ratio of Market Activity
First Caribbean International
Nov. 1994
208,859
1,119,681
490,200
43.7803%
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Companies Domiciled in Jamaica
Names Of Companies
Date Cross-Listed in Trinidad
Date Cross-Listed In Barbados
Volume At Listing Date
Volume Traded 2005 in Jamaica
Volume Traded 2005
Ratio of Market Activity
Capital & Credit Merchant Bank
Oct. 2003
43,439,400
25,383,001
11,372,666
44.8043%
Dehring Bunting & Golding
51,144,815
11,586,288
22.6539%
Grace Kennedy Limited
Dec. 1998
Oct. 1999
14,782,397
8,717,970
58.9753%
Jamaica Money Market
Feb. 2003
Nov. 2005
488,208,584
30,558,624
16,831,762
55.0835%
National Commercial Bank
Nov. 2003
108,069,136
20,309,113
18.7927%
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INVESTORS- WHAT ARE THEY LOOKING FOR?
Investors are interested in companies that are located across the region but they need an efficient vessel to effect trade. What is significant to investors which holds true for any company in which they invest or wherever the company is located are:
q The Type of Management
q The Return on Investment
q Entry and Exit from Securities (regional & sub-regional alliances)
q Consistency in the market place rules and regulation
Investors have been investing across the region, whether through Inter-CSD arrangement and many have become very sophisticated in the process. The lack of regulatory or a perfect market place has not hindered these activities. Cross-listed securities have paved the way for a greater intra-regional independent investment base. While it is a step in a direction of integration it is not the driver expected to reap long lasting results in the development of the regional capital market.
WHAT ARE THE ISSUES RESOLVED IN THE DEVELOPMENT OF A REGIONAL STOCK MARKET
q There is a common trading platform
q Depositories are in place to allow efficient custody arrangements
q The harmonization of rules of the Exchanges is far advanced
q The Exchanges participating in the Memorandum of Understanding are far advanced in achieving the G-30 compliance. There is an electronic order matching system, central securities depositories.
WHAT ARE THE ISSUES UNRESOLVED
(i) The number of days traded in the Trinidad & Tobago market and the limited trading hours will hamper liquidity and overall regional market integration.
(ii) The disparity in settlement cycles. Jamaica being T+3 while Barbados and Trinidad are still settling at T+5.
(iii) Domestic macro-economic influences which are commonly found within individual countries, such as extreme variation in Exchange rates and high inflation can have significant impact on stock prices indices.
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It is important to note that even within a regional market, domestic markets need to grapple with the level of growth within their countries which generally has been impeded due to:
q The leaning of companies towards debt as opposed to equity
q The reluctance of companies to share control
q A lack of transparency in the market
We cannot allow the Regional Capital Market formation to move into the 17th year unresolved. The rationale for development of the market is compelling:
1. Companies have access to a wider market for raising capital at lower cost leading to better ability of the region to compete globally
2. A regional market could act as the lever to prevent funds from being invested outside of the Region, because investors can diversify their portfolio regionally.
3. A Regional Exchange can be attractive to regional and international investors alike. Our mission now therefore is to move towards completion of a process already started.
I am proposing that given the fact that the exchanges all have local priorities which appears to take away from the focus of the regional exchange, that we develop an RFP and contract the services of a consulting team, whose major focus is to get the job done.
Concentration should be geared towards:
(i) Settlement issues (an automated clearance and settlement system)
(ii) Harmonization of Securities legislation
(iii) Sign-off of unified (harmonized) Stock Exchange & Depository Rules
(iv) Energizing Government Central Banks in considering move towards a dematerialized environment
(v) A Regional Training Programme and access to all primary dealers to the Regional market
(vi) Getting consensus and sign on from Exchanges/Owners and an understanding of a business noted that the Regional Market WILL NOT threaten the local/domestic Stock Exchange.
Ladies & Gentlemen we need to act NOW!
Thank you.
