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Moving Closer?

By Larry Luxner

The creation of a Caribbean Single Market and Economy has lent impetus to the idea of an integrated stock market for the region.

Now that Caribbean leaders have agreed to establish a regional free-trade zone for goods and services, the next logical step, some argue, is to develop a Caribbean-wide stock exchange to help attract foreign and institutional investors.

"I think it's critical," says Lyndon Guiseppi, managing director of Trinidad's RBTT Merchant Bank Ltd. "We currently have three major stock exchanges, one each in Jamaica, Barbados and Trinidad. The three combined have less than 100 companies listed, and most of these companies operate throughout the entire region, so while they may be domiciled in Trinidad or Jamaica, it doesn't really matter where they're listed."

Roy Johnson, executive chairman of the Jamaica Stock Exchange, is among those in favor of a Caribbean stock market. "The concept has been under consideration for some time now, but what brings immediacy to the need for action is the new Caricom Single Market and Economy. We have to look at the best kind of arrangement to ensure there will be a seamless movement of capital across the region. A Caribbean stock market is likely to contribute to that."

But Johnson warned that until there's some kind of regional regulatory authority in place, it wouldn't be possible to have a single Caribbean exchange.

Keith Davies, CEO of the Bahamas International Securities Exchange, which lists 20-odd companies and sees 300-400 trades a month, is also lukewarm about the idea of a regional stock exchange.

"Should there be one centralized exchange through which all listings and tradings occur? I'd say no," Davies told LatinFinance. "That should organically occur out of the growth of linkages. All of us are trying to achieve different things with different rules, so what needs to happen is a general agreement that we will link our software and share information. At the end of the day, the goal is to trade amongst each other, not to be one exchange."

Trevor E. Blake, general manager of the Eastern Caribbean Securities Exchange in St. Kitts, says his bourse is already, in essence, a regional exchange, since it links eight smaller English-speaking islands in one integrated market.

"That same model could be used right across the Caribbean," he said. "Right now, we have seven exchanges in the region, all of which suffer from low liquidity, low market activity and relatively high cost. So we think moving to a single exchange would allow economies of scale, where everything could be done on a single platform, integrating the whole Caribbean Basin."

The St. Kitts exchange, established in 2001, currently lists nine entities and 11 debt instruments. It's a fully electronic exchange located at the headquarters of the Eastern Caribbean Central Bank. The bourse operates on a T+1 cycle, Blake said, so the very next day after trade, it has full settlement, whereas all of the other markets in the region have just moved down to three-day settlements from five.

In 2005, Blake said the exchange outperformed all other Caribbean markets by yielding a 15.5% return on investment. "In fact," Blake added, "the growth recorded by the index was almost double that of the closest competitor, the Barbados Stock Exchange, whose BSE Local Index recorded an increase of 5.19% over the year. The performance of the other markets, as recorded by the various indices, paled in comparison, [with] most showing declines in values."

Last April, Jamaican conglomerate GraceKennedy Ltd. listed on the Eastern Caribbean Stock Exchange, making it the first non-Eastern Caribbean company to do so. Two months later, FirstCaribbean International Bank (Barbados) Ltd. joined the bourse as well. "By listing on the [St. Kitts exchange], these two premier regional blue-chip companies, which are already listed on other exchanges, have taken the opportunity to expand their investor bases, while creating more opportunities for investors," Blake said.

Blake maintains that the only people who might oppose a regional exchange are those who have vested interests in the status quo.

"Most of the Caribbean exchanges are owned by broker-dealers who basically dictate who operates on the exchange and what happens. Our model is totally different. We are owned by 45 shareholders and institutions, not by broker-dealers who dominate the operations. These people would lose out [if a regional exchange were established], because they'd no longer have the sort of control they do now."

So far, most of the talk has centered on a regional exchange for the English-speaking Caribbean. But Donald Cott Creus, executive vice-president of the Bolsa de Valores de la Republica Dominicana, argues that the vision ought to encompass the Spanish-speaking Caribbean as well as Central America.

Since its founding 16 years ago, the Dominican bourse has negotiated around RD$79 billion in trades, or $2.3 billion at current exchange rates. It currently lists seven entities ranging from food processor Induveca to financial services firm Leasing Popular SA.

"For the last 15 years, it was an open floor, but at that time we didn't have a capital markets law. We were self-regulated," said Cott, whose exchange operates on the ground floor of a Santo Domingo office building. "We worked under this self-regulation until the Capital Markets Law was enacted and approved by Congress [in 2002]. That gave birth to the Securities and Exchange Commission and also the Superintendency of Stocks."

Cott said the development of a capital market in the Dominican Republic is a main objective of President Leonel Fernández.

"One of his projects was to establish a very liquid secondary market, which the country desperately needs at this time, especially right now, since the AFP (a major pension fund) has so much money invested for the long-term," he said.

"All the employees are paying into it, expecting to get their money back in the middle- to long-term, but we lack instruments whereby they can invest that money. At present, this money is invested in commercial banks on a short-term basis. That does not provide the country with the basis and means to obtain medium- and long-term financial depth," Cott explained. "All the bonds, shares, commercial paper and treasury bills issued by the government or the private sector should have a market that could provide liquidity, transparency and price information to all potential investors."

What would really make a difference, Cott said, is joining the stock exchanges of the English-speaking Caribbean with those of neighbors throughout the region - something he's been arguing for since 1996.

"We realize that if we keep acting individually, since every one of these exchanges is so small, no institutional investor will be interested in us," said Cott. "And even if you create one Caribbean exchange, if you exclude the Dominican Republic, it won't have sufficient depth to attract institutional investors."

Cott predicted that within 10 years, instead of having a dozen Caribbean and Central American exchanges like today, most probably there will be five or six since bourses across the globe are either merging or fading out. "There's no reason so many exchanges should exist in such a small region."

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