Lack of innovation stalls Carib stock markets
Published:Friday | January 24, 2014 | 12:00 AM
Avia Collinder, Business Reporter
The Caribbean under-performed global capital markets in 2013, producing less than five per cent of the value of capital raised, even while the markets in the wider Americas did came out on top.
But general manager of the Jamaica Stock Exchange, Marlene Street Forrest, believes the regional exchanges can squeeze a lot more value out of their capital markets, saying it requires brokers to more willingly trade products such as derivatives.
"We are not utilising the markets and exchanges in the way we really should," said Street Forrest at the opening session for the 9th annual JSE Capital Markets Conference in Kingston. "Exchange-traded funds should be a catalyst for growth of the market."
Faced with the problem of small markets, better value would come through the establishment of a Caribbean stock exchange, she said, but noted that this project has been in limbo while jurisdictional issues affecting sister exchanges are ironed out. The so-called Caribbean Exchange Network, or CXN, would span exchanges in Jamaica, Trinidad and Tobago and Barbados, initially.
Within the region, the concentration of investment activity has been on equities, but there is need for a wider embrace of other tried-and-tested products, including derivatives and fixed-income securities, said Street Forrest.
The regional stock exchanges are blessed with a sound regulatory infrastructure but "they must increase the number of investment product offerings and increase our responsiveness to ideas which are already tried, tested and proved to increase liquidity in other markets," said the JSE boss.
WIDER ASSET POOL
"Under fixed income, we have just started listing for the bond market. We want to go into more of these products," she said of the JSE's push to innovate and diversify.
One innovation suggested by the JSE boss was the merger of different asset classes into a product, which allows investment in combined classes of securities. Product offerings in this category, she said, have grown significantly worldwide over the last 18 years, outpacing the 66-year development cycle of mutual funds.
"This has allowed especially institutional investors and pension funds to invest in a vast pool of assets available," Street Forrest said.
Surveying innovation on a global scale, she said Malaysia has launched a gold contract, while other jurisdictions have issued egg futures, futures contracts on German stocks and single stock dividend futures.
"Turn your attention to how you can develop the market," she urged investment firms.
The JSE, she said, has the technical capacity for exchange-traded funds (ETFs), futures and options. Last year, the stock exchange disclosed that it was exploring the possible development of a commodities exchange for Jamaica.
The JSE operates a junior market, a US-dollar-denominated securities market, and a bond platform, alongside with its main market listings. The junior exchange continues to grow and has climbed to 22 listings, including one preference stock, but the USD market still has only one listing. The bond trading platform, which launched last year, has two listings.
Street Forrest said that $3 billion was raised through the JSE Junior Exchange and $6.7 billion overall; and that 13 new securities listed in 2013. Nevertheless, she noted, the trading and settlement platforms are underutilised.
"We need throughput on this expensive technology we have," she said.