Securities dealer Keith Duncan is charging that an overly cautious financial system is stifling the corporate bonds market, while elsewhere, the business is exploding, pushing companies into more friendly jurisdictions to raise capital.

Using descriptors such as "onerous" and "laborious" to define the level of oversight, Duncan suggested that the local capital market, though not as sophisticated as other world financial centres, was being regulated as if it were.

"Our local issuers are not at a stage of development or maturity where they can meet these laborious reporting requirements," said Duncan, speaking as president of the Jamaica Securities Dealers Association (JSDA) at a luncheon meeting of members.

"And, if we apply imported standards which bear no relevance to the maturity of our private sector, we will not give our market the stimulus it requires to develop and grow."

To demonstrate the level of business, he said three years ago, in 2004, corporate paper raised US$105 million. But since calendar year 2007, flotations in the region have raised US$3.5 billion ($240 billion), none of which, he said, originated from Jamaica.

"In the main, they have gone to foreign jurisdictions such as Barbados, St. Lucia, etc."

Corporate paper has most recently been issued by Irish-owned Digicel Group, whose foundation business began and remains in Jamaica, and Mirant-owned Jamaica Public Service Company.

Debt instruments

The Government of Jamaica, the premier issuer of debt instruments, also intermittently floats bonds on the international markets, last raising US$350 million in March with Citigroup as lead broker.

Most recently in June, the state-owned airline Air Jamaica raised US$125 million on the eurobond market. The national carrier chose Bear Stearns of New York as the arranger.

As the corporate paper business flows elsewhere, Jamaican dealers are struggling at the same time with private-placement rules that, the JSDA president said, are a "roadblock" to investors.

Those barriers, he adds, includes the restriction on resale of instruments unless re-registered as a public offering, and the "arbitrary" limit of 50 on the number of subscribers to an offer.

"The criteria for investor participation should not be based on wealth but instead be designed around the sophistication of the investor - that is, the education and/or experience - and the adviser ensuring that the client has a balanced portfolio," said the JSDA president.

"Unsophisticated investors, however, should be treated in other ways."

Higher-yielding investment

For the latter he suggests they could access higher-yielding investment options through repurchase agreements, which would skew the risk to the securities dealer and be reflected on the balance sheet.

"This balance sheet risk taken on by the dealer," he said, "would then be managed through capital-adequacy models which are currently being reviewed via dialogue between the industry and the FSC."

Duncan, who is chief executive of the expanding regional brokerage, Jamaica Money Market Brokers Limited, said Jamaica simply lacks the legal framework and enabling policies that would act as pull for issuers of securities.

But, notwithstanding that the floats are done elsewhere, Jamaican investors still end up taking on the credit risk associated with the issues as when the instruments trade here on the secondary market.

business@gleanerjm.com

Filing requirements for private placements