The application of stringent fines and penalties to members of the Jamaica Stock Exchange could potentially disable the Exchange and punish shareholders unnecessarily, according to financial analyst John Jackson.

“One has to be careful how one proceeds with fining institutions,” said Jackson, who is an active investor and publisher of Investors’ Choice Magazine. “One has to find a happy balance between compliance on one hand and penalties on the other.”

Jackson argued that given that the payment of these fines would be taken out of profits, therefore, it is the shareholders who may be left holding the bag.

He believes that regulators should instead focus on making listing on the JSE a more attractive option, especially given the limited choices in investments currently on the JSE.

“Do the things that are going to make listing attractive,” he said. “At the moment there are no incentives to list,” Jackson said.

Fines of up to five million dollars are to be levied on listed companies for non-compliance to the rules of the Jamaica Stock Exchange (JSE). This is following the amendment to the rules which will allow fines applicable to violations ranging from failure to notify the Exchange of the company’s Annual General Meeting, to failure to complete and submit financial statements on time.

In the document published by the Regulatory and Market Oversight Committee (RMOC) of the JSE, on the Exchange’s website, the RMOC noted that the penalties are “remedial action that contributes to an Exchange’s ability to achieve desired levels of deterrence”.

The RMOC noted that the penalties are based on two considerations: The presence or absence of direct benefit to the corporation as a result of the violation and the degree to which the penalty will ensure compliance for the benefit of the shareholders.

These changes will in effect make the regulations more stringent and the fines for non compliance more prohibitive. Fines range from $2,500 per day where members do not submit a schedule showing the number of accounts managed and the dollar value of these accounts each month, to a maximum penalty of $5 million where proper books of accounts are not kept. The rationale, according to the JSE is to ‘advance compliance in the market’.

“The requirement seeks to create an assurance that member dealers are undertaking their fiduciary responsibilities, having been given the privilege to trade on the Exchange,” The RMOC stated as the rationale for the latter fine.

“It makes sense in a place like the US where people want to list. But in a third world country I don’t know that we are going in the right direction,” Jackson argued. He said that given the severity of some of the fines, “some companies are going to find it more convenient to delist”.

“It sounds great on paper but the thing is if we delist are we going to end up with stocks that we can’t sell,” Jackson argued.

He noted that a better approach to compliance would be engaging with the companies to see how they can find ways to make it easier to comply with the regulations.

Among the rules that attract the highest fines are those that directly affect the operations of the JSE, including that of regulator, disseminator of information regarding the activities of the companies and limiting illegal activities such as money laundering, kiting and illegal trading. The maintenance of proper records and protecting the integrity of the market and dealers are among the breaches that also attract the $5 million fine.

The RMOC has also stipulated that the submission of the list of holders of the company’s securities be made within 30 days after the end of the calendar year. If this not adhered to a fine of $5000 per outstanding day would be imposed.

A $50,000 fine is applied to those who fail to submit “evidence that management is undertaking proper record keeping, accounting and oversight of the company’s affairs,” the RMOC states. “If annual reports are not submitted to shareholders they would not be informed about the operations of the company.”

The penalty for not submitting audited financial statements of the listed companies by the due date, failure to notify the public about the delay and breaches of the accounting procedures would attract fines of $10,000 for not submitting all documents on time, $25,000 for being late and $5000 for each late day. On becoming overdue, at which time the firm ought to be suspended from trading the fine would be $15,000 per day. A company is subject to suspension if audited statements are 90 days overdue and there is automatic delisting if the suspension is for over 180 days.

The JSE said the submissions are a key function of doing business with shareholders, who must be kept updated on the operations of the company.

“The provision of financial information is an important management responsibility. Shareholders need this information to assess their investment,” the RMOC said.

According to the RMOC document, most listed companies are non-compliant in publishing their annual report within the specified time-frame. The rule stipulates that members should submit their annual reports within 120 days of the end of the year. The JSE indicated that with the amendment to the rule that now requires that the company includes a management discussion and analysis (MD&A) with the annual report, timely submission is even more necessary. “This fine ought to signal that the timely submission of their annual report is very important to the exchange”, the JSE said. The fine of $50,000 is applied where this is not done.