Marlene Street-Forrest, general manager of the Jamaica Stock Exchange, says a new business unit for the JSE will target five new listings per year for the JSE and a junior market soon to come on stream. - File

Sabrina Gordon, Business Writer

The Jamaica Stock Exchange (JSE) has announced plans to strip away its regulatory functions from its other operations by creating a new business development unit (BDU) that is meant to become a strong income earner for the exchange.

The JSE has also now signaled it will be developing a junior market that will allow companies to list under less stringent rules; and that it is about to take on the more sophisticated and risky derivatives market.

The unit, to be created by year end, will also have the job of wooing companies to list on the JSE, an area in which the exchange admits it has had a disappointing history.

Number of listed stocks

Currently there are 44 listed stocks, three of which came on board in 2006.

On Thursday, at a briefing that followed the JSE's annual general meeting, general manager Marlene Street-Forrest said the BDU should become operational by year end. The exchange's push to develop new income streams appears to be taking on new urgency in its countdown to demutualisation.

That process of moving JSE from a membership-based to a for profit outfit has been plagued by delays as the exchange amends its rules, negotiates with the Financial Services Commission, which will become its regulator, and decides how the share ownership of the company will be distributed.

Eventually too, the JSE plans to list on its own exchange and will likely cross list, at the very least, in Trinidad and Barbados.

The BDU will be responsible for the conceptualisation and implementation of revenue-generating products and the creation of a junior market to which companies with small capital base will have access.

The junior market is to be fully operational by September of this year.

The unit will work with different sectors in the development of new products such as venture capital, fixed income and trading in derivatives.

The BDU's target is five new listings annually on both the junior and normal exchanges. "Com-panies usually shy away when the market is 'bearish' and we have been working with some who are expected to become listed as soon as market performance picks up," said Street-Forrest.

The main JSE index peaked at 103,750 points in January, but flopped to 80,415 by July before rising back to 100,678, resulting in a marginal decline of 3.7 per cent for the year.

Revenue from the new unit is expected to boost the JSE's turnover by 50 to 60 per cent from sources like derivative trading, the establishment of the Caribbean Exchange Network, training programmes for professionals and conferences.

The announcement of the BDU comes behind reports of the exchange's weakened financial performance.

Revenues of $177.37 million was a slight adjustment on the $177.77 million earned in 2005, but 2006 saw a one-third fall in operating profit, from $27.7 million to $20.8 million.

Investment income was also down from $43 million in 2005 to $33.6 million.

The JSE ended 2006 with a net surplus of $62 million but this was a near 13 per cent decline of the previous year's $71.7 million.

Stocks standings

As for the market, the traded value of stock units fell by $7 billion, while market capitalisation also registered decline of $17 billion to $822 billion. There was also a sharp drop in the total number of transactions, from 75,000 to 41,822.

"We had a rough year for 2006," said Street-Forrest.

But the GM anticipates a pick-up in business later in the year.

"Increased volume is anticipated with general election out of the way by October," said Street-Forrest.

"Despite challenges, we expect to see a rebound, with institutional investorscoming into the market once the electoral process is completed."

JSE Chairman Curtis Martin linked the JSE's flagging perfor-mance to competition from other investment houses.

But there were, he pointed out, some positive trends in the market, reflected in the other indices.

The All Jamaica Composite and the blue-chip JSE Select recorded gains of 9.8 per cent and 9.2 per cent, to close the year at 107,213 points and 2,859.6 points respectively. The volume of stocks traded increased by $1 billion over the previous year to $2.9 billion.

The demutualisation of the exchange is timetabled for 2008, Martin told reporters after the AGM.

A market regulatory department is being created under the new structure, to ensure that "the commercial, financial and stock price considerations do not taint regulatory decisions," said Martin. It will come on stream at the same time as the BDU.

The distinct demarcation between commercial and regulatory interest, the JSE said, would strengthen market integrity and protect investors.

The department's three areas of focus will be market surveillance, regulation of listed companies and enforcement.

A chief regulatory officer to be appointed will report directly to an independent regulatory committee whose decisions will be final.

sabrina.gordon@gleanerjm.com