Sabrina N. Gordon, Business Reporter

CHEN

Gavin Chen, a development finance specialist, is charting a plan for Jamaica's nascent foreign exchange traders that is meant to legitimise them as a formal sector and position their operations as suitable candidates for licensing or registration.

Chen, who at one time ran the state-owned National Investment Bank of Jamaica, told the Financial Gleaner that several operators of th investment schemes had come to him for help.

"I am working with the group to help them work with the authorities in deciding the best route to take in becoming regulated," said Chen.

"What we are doing is trying to develop the optimal regulatory regime and how it will fit within the existing regulations in Jamaica and the wider Caribbean territory."

The schemes have been under pressure since a Supreme Court ruling December 24 settled the issue of whether they were in fact securities traders and, therefore, subject to oversight by watchdog Financial Services Commission.

The two parties that brought the suit, Olint and Lewfam, have appealed, but in the meantime, what appears to be the majority of the sector, have been taking steps to legitimise their businesses.

Chen, who is their consultant, has not named the individual members but said the group numbers more than 20.

The FSC had in December estimated that there were some 2 schemes in operation, but said then that the list it publicised only included those operators brought to its attention, and may not have been a full reading of the sector.

Chen estimates 'conservatively' that his group of 20-plus members trades US$400 to US$800 million daily, or US$146 billion to US$292 billion per annum, saying it could be as much as twice that.

Currency trading worldwide is a US$3.9 trillion per day business, making it the largest global financial market.

Chen also said if regulated, their contribution to the tax pool would be about $210 million to $250 million per month, or $2.5 billion to $3 billion per year.

The finance specialist said his group was negotiating with the regulatory authorities, but would not disclose the details of the discussions, nor would he specify which regulators were included in the dialogue.

Central party

Currency trading is now more acknowledged as an investment activity and would, therefore, fall under the FSC, but yesterday FSC spokeswoman Nadene Newsome directed Financial Gleaner queries about Chen's group to the Bank of Jamaica, suggesting the central bank was the central party to the talks.

Up to press time, BoJ had not commented, but said the queries were being reviewed by inhouse counsel.

Chen has been working with his group for the past four months and says he is in the process of finalising a green paper with drafted regulations for institutions conducting foreign currency trading.

"We are far advanced and are now waiting on the authorities to decide what it is they are going to do," said Chen.

He has proposed a self-regulatory organisation designed along the lines of a stock exchange, with features unique to the foreign exchange market.

"This proposal has been put forward to the authorities," said Chen. "What we are recommending is no different from the best practices that exist in international jurisdictions."

Industry burden

Chen said a self-regulated currency trading market would save the Government a significant amount in monitoring expenses since it places the burden of cost, proof of qualification, and policing of ethical behaviour on the industry.

The structure proposed, he adds, mimics the foreign exchange trading committee in the United States.

The group members, he said, has to hurdle the stigma of being labelled scams, but notes this can be done by obtaining licences for advisors working in their companies, establishing qualification requirements, and acceptable accounting standards.

He is also considering a clearing system for the trades, saying "An independent clearing house would add significantly to transparency in the process".

sabrina.gordon@gleanerjm.com