JAMAICA Stock Exchange Chairman Roy Johnson has called for the establishment of a Caribbean Stock Market Association to take over and drive forward the process for the establishment of a Caribbean Regional Stock Exchange. Johnson made the call in a paper entitled, "The Integration of Caribbean Stock Exchanges/Markets-A Dream Deferred," which he delivered at the Caribbean Latin American Action (CLAA) organisation's Miami Conference on December 5. He said that the proposed Caribbean Stock Market Association would bring together all the major regional securities market players- the brokers, the issuers, the regulators the stock exchanges and investor interest groups- in a concerted effort to make a Caribbean regional market a reality.
"I am aware," Johnson said following his presentation of the paper, "that there have been and continue to be several initiatives on the subject since 1989 when the CARICOM Heads of Government put forward the idea of developing a regional capital market as a component of the then proposed CARICOM Single Market & Economy." In particular, Johnson cited the current efforts by the Regional Stock Exchange Committee set up by the Caribbean Association of Industry & Commerce (CAIC) in association with accounting firm of Ernst & Young Caribbean, to launch a pilot project with the financial support of regional brokers; and the nascent attempts to form a regional association of security market regulators.
However, Johnson says that the Association that he is proposing would be the first attempt to organise the key regional market players under one roof for the single purpose as stated.
BACKGROUND
In 1989, the Heads of Governments of the Caribbean Community & Common Market (CARICOM) expressed their commitment to furthering the economic integration of the region by forming the CARICOM Single Market & Economy. This would be built around a regional capital market, which would facilitate cross-border transactions among the stock exchanges in Jamaica, Barbados and in Trinidad & Tobago.
A Regional Capital Markets Committee was set up by CARICOM to examine and to make recommendations for the appropriate structure, objectives, public education and promotional programme for establishing a Caribbean Stock Exchange as well as to chart the path for the further development of the Caribbean regional capital market.
Two years later, in April 1991, the three stock exchanges, the Barbados Securities Exchange, the Jamaica Stock Exchange and the Trinidad & Tobago Stock Exchange entered into an agreement for cross border listing and trading in equities. In 1996, the Jamaica Stock Exchange spearheaded the Caribbean Capital Markets Harmonisation Project that was funded by the Inter-American Development Bank. The principal objective of the project was to design and implement a plan for the development of a central securities depository and automated trading system for each participating country. In addition to the three original markets, the Bahamas and the Dominican Republic were involved. The Dominican Republic later dropped out.
Jamaica established the Jamaica Central Securities Depository (JCSD) in June 1998 and the automated trading platform in January 2000 and remains the only market to put both systems fully in place. Jamaica is also the only market that trades five days per week and settles trades with the exchange of cash and ownership on the international standard of T+3, or by the third day following the transaction date.
CURRENT PICTURE
Today, four securities are listed on the three original stock exchanges. However, as Johnson said in his CLAA address, "the cross-listed securities continue to trade primarily in their own home market, ignoring by and large their host countries' markets."
The cross-listed stocks and their home markets are:
FirstCaribbean International Bank Ltd. Barbados
Grace Kennedy & Company Ltd. Jamaica.
RBTT Finance Holdings Ltd. Trinidad & Tobago
Trinidad Cement Ltd. Trinidad & Tobago
Furthermore, according to Johnson, some issuers are now questioning whether the costs of triple listing are worth the benefits that accrue. There are now five stock exchanges in the English-speaking Caribbean. The Bahamas International Securities Exchange (BISX) was launched in May 2000 and the Eastern Caribbean Securities Exchange (ECSE) was established in October 2001. However, these exchanges have yet to add significantly to the potential of a regional stock market. The ECSE is itself a cross-border market. Established by the Eastern Caribbean Central Bank, which is headquartered in Basseterre, St. Kitts, the ECSE will facilitate electronic trading in stocks, bonds and government securities across eight member territories: Anguilla, Antigua & Barbuda, Dominica, Grenada, Montserrat, St. Kitts & Nevis, St. Lucia and St. Vincent and the Grenadines. As is now the case in Jamaica with the JCSD, physical certificates will not be employed. Evidence of ownership will be held electronically in the Eastern Caribbean Central Securities Registry Ltd. (ECCSR), a subsidiary of the ECSE.
The Jamaica Stock Exchange was established in 1969, followed by Trinidad & Tobago in 1981 and Barbados in 1987. Last year, these stock exchanges had a total of 92 common stocks, 16 preferred stocks and nine government bonds. A combined volume of 838.4 million units was traded with total value of US$241.2 million. Market capitalisation across the three exchanges was US$11.55 billion. The Jamaica Stock Exchange accounted for 41.3 per cent of the common stocks, 85.2 per cent of the volume traded, 30.6 per cent of the value traded and 40.7 per cent of the market capitalisation.
"The most efficient model," Johnson's paper asserts, "would be a single electronic stock exchange to service all the markets involved." "What is clear," the paper continues, "is that the model we have pursued over the past five to ten year period is grossly inefficient and extremely expensive. Each of the markets in Barbados, Trinidad & Tobago, the Bahamas, the Eastern Caribbean and in Jamaica has spent substantial sums of money acquiring hardware and software, when one platform could easily have handled all the trading and settlement requirements for the entire region."
THE WAY FORWARD
The way forward to a Caribbean Regional Stock Exchange must be paved with answers to several questions. Among them are the following, Johnson says:
Can a single, electronic regional stock exchange be achieved?
What is the most appropriate model?
Is there support for the Association that he is proposing?
Where is the leadership that is required to gain support across the various stakeholder groups for the concept of a regional stock exchange?
In particular, what is the process towards the harmonisation of the multiplicity of standards and regulatory regimes
What or where is the forum to service and to sustain the process of the drive forward?
What is the likelihood that a single stock exchange would attract increased listings throughout the region?
What or where is the evidence that regional investors desire and would make use of a regional stock exchange?
In his address to the CLAA Johnson invited the CLAA to take the initiative in encouraging the formation of a Caribbean Stock Market Association, whose objectives and rationale for each would include the following:
1. Provide leadership for the integration of the regional stock markets. While the call for a regional market has been made for some time and various committees and groups have been formed or proposed by the stock exchanges, the regulators and public companies, there has not been the consolidated leadership necessary to manage all the issues by involving all the stakeholders and to set a definite agenda.
2. Increase the number of equity, bond and mutual fund listings across the region. The level of interest and commitment we expect from stockbrokers and individual stock exchanges will no doubt be a function of the extent to which they see a deepening and strengthening of the market arising from this exercise.
3. Work with the different regulatory agencies across the region to harmonise the regulatory framework. There must be a common protocol, a common understanding of the standards and common processing and application of the standards. Adoption of the international best practices, while a start, is not a guarantee of uniformity.
4. Study the feasibility of different models of integration and recommend the most acceptable. We must take care not to transplant models but work out what really applies in our context. For example, in Canada, the Toronto Stock Exchange was able to regionalism through a take over bid for the two other exchanges. That method clearly could not work in the Caribbean, where we have mutual exchanges.
5. Secure funding for the integration project. The proposed Association or a steering action group would operate across the region and would be composed leaders of stature to drive the process. It would be necessary to have working sub-groups in each jurisdiction comprising all the stakeholders. Financing would have to be secured to support their work.
6. Develop and conduct the public education campaigns required to gain the necessary support among the key target audiences. This is essential in order to ensure the development of the necessary understanding and ownership of the programme's aims and objectives by all the stakeholders as well as to determine the impact of the effort periodically.
Without as comprehensive an approach, according to Johnson, "the dream of a Regional Caribbean Stock Market will remain deferred."
Note: Following the Miami Conference held on December 5 2002, Roy Johnson was advised by the CLAA that they would be convening a follow-on conference on the subject in Barbados in June 2003, and that at a subsequent conference in September, his proposal for a Caribbean Stock Market Association would be addressed.
(This column is part of the on-going public education programme of the Council of the Jamaica Stock Exchange).
