A stock exchange is undoubtedly the most important component of any stock market, facilitating the trading of stocks and other securities. An organised exchange gives Companies the opportunity to raise capital through listing and allows for information to be exchanged, through a broker, regarding prices and volumes so that investors can buy or sell securities at a price.

In the Caribbean, there are more than a dozen national Stock Exchanges but only one formalised regional securities market known as the Eastern Caribbean Securities Exchange (ECSE). Among the largest are the Jamaica Stock Exchange (JSE), the Trinidad & Tobago Stock Exchange (TTSE) and the Barbados Stock Exchange (BSE). The JSE, which is the oldest Exchange in the region, was incorporated as a private limited company in August 1968. The TTSE was formally opened in 1981 under the auspices of the Ministry of Finance and the BSE, formerly known as the Securities Exchange of Barbados (SEB) was established in 1987. These Exchanges offer the market a range of investment opportunities comprising equities, mutual funds and government bonds.

The JSE which has a market capitalisation of $559.31 billion (US$4.79 billion), has 58 securities listed on the main market, namely common stock and preference shares. The JSE also lists corporate bonds; however none are currently traded on the Exchange as all were de-listed at the end of last year. Government of Jamaica (GOJ) bonds are not listed on the JSE but are traded by the Bank of Jamaica (BOJ) on an electronic platform on the over the counter market (OTC). The TTSE however implemented an electronic bond platform in 2008 on which 16 government bonds are currently traded. Apart from these bonds, there are 38 local and regional stocks listed on the TTSE with a total market capitalization of approximately TT$76 billion (US$12 billion). Three mutual funds are also traded on the TTSE and in June of this year, a Corporate Bond Market was established with the listing of three bonds issued by Scotiabank Trinidad & Tobago Ltd (SBTT). The BSE is the smallest of the three with only 26 listed Companies on the regular market and a market capitalization of BD$8.45 billion (US$4.28 billion). Ranking by market capitalization, the TTSE is currently the largest exchange in the region.

Besides the regular market, all three Exchanges have a junior or secondary market for the purposes of attracting smaller Companies. The JSE Junior Market, which was established just last year, is already very vibrant as it offers many incentives for small to medium Enterprises with capital of $50 million to $500 million. One of the main benefits of the JSE Junior Market is the tax holiday. Provided that the Company remains listed on the Stock Exchange for 10 years, it will be exempt from paying corporate income taxes during the first five years that it is publicly traded. In years five through 10 on the Junior Market, the Company will be eligible for a 50 per cent reduction on corporate income taxes. In October 2009, Access Financial Services Ltd (AFS) became the first Company to list on the JSE Junior Market. Since then, more Companies have been added, namely Blue Power Group Ltd (BPOW) and Jamaican Teas Ltd (JAMT). Currently the Junior Market has a market capitalization of $2.25 billion and has gained 80.53 per cent year-to-date, to 270.81 points after peaking at 317.36 points in May.

The TTSE has a similar market which it refers to as the Second-Tier Market, where instead of a five-year record of the Company’s results, it requests one year of audited financial statements and this requirement can be waived as appropriate. It also allows some flexibility on the requirement that 25 per cent of the shares must be in the public’s hands. To accommodate companies on the Second-Tier Market, the TTSE charges half the listing fees for the first three years with the intention that the Company should graduate to the First-Tier Market between three and five years. Despite these incentives, the TTSE Second-Tier Market only consists of two listings, FNCU Venture Capital Company Ltd (FNCU) and Mora Ven Holdings Ltd (MOV) and has a market capitalization of TT$115.9 million. On the BSE, Sunbeach Communications Inc (SBH) is the only Junior Market and this Company was listed back in 2002.

Looking at market liquidity, the JSE by far, sees the most volume traded on average daily. Year-to-date, the JSE Main Index has advanced 2.39 per cent to 85,317 points on average daily volume of 13.94 million. The TTSE Composite Index has advanced 6.7 per cent to 818.41 points with 361,000 units traded on average since the start of the year. On the other hand, trading activity on the BSE is quite infrequent and there are days when no activity occurs. The BSE Local Index has declined 5.61 per cent year-to-date to 3,051 points.

Another component, common to all three Exchanges is a Cross Listed Index, as in 1991 the JSE, TTSE and BSE entered into an arrangement for cross border listings and trading of securities. Since then, Companies such as GraceKennedy Ltd (JSE: GK; TTSE: GKC) have taken advantage of the opportunity to list on all three Exchanges. GraceKennedy however, made the decision in March of this year, to de-list from the BSE due to inactivity and the associated cost. Despite this, the BSE still has five companies on its Cross Listed Index, surpassing Jamaica which only has First Caribbean International Bank (FCIB), Guardian Holdings Ltd (GHL) and Trinidad Cement Company Ltd (TCL). In addition to GKC, the TTSE carries 10 Companies on its Cross Listed Index, seven of which are Jamaican Companies such as National Commercial Bank of Jamaica Ltd (NCBJ).

These exchanges have also been spearheading efforts for a new Caribbean Exchange Network (CXN) that will initially harmonise the three stock markets via a common trading platform. A single stock exchange for the region would enhance the promotion of the movement of capital across the region, increase investment opportunities, encouraging optimum financing for regional firms and increase the attractiveness of the CARICOM as an area for investment. Therefore as stock exchanges across the Caribbean expand and regionally integrate, investors will be sufficiently equipped to enjoy a more active and diverse stock market that resembles those of developed countries.

Deirdre Witter is an Investment Analyst at Stocks & Securities Ltd. You can contact her at dwitter@sslinvest.com.