While Sterling Asset Management is traditionally known for management of US dollar assets, the company recently disclosed that Fixed Income trading volumes has surpassed $10 billion for the first quarter of 2011.

According to the firm, the JDX, the accompanying introduction of the Jamaica Central Security Depository (JCSD) and the Real Time Gross Settlement (RTGS), as well as the general decline in local interest rates are among a number of critical factors that have facilitated its foray into the local debt market.

Prior to the JDX, investors would have to get written proof of purchasing a bond, which had to be sent to the Ministry of Finance for registration. The Ministry would then re-issue a certificate confirming same, the process of which would take a minimum of three months to complete. However, with the JDX came the introduction of the JCSD and the Real Time RTGS — administered by the Bank of Jamaica — which allows investment companies like Sterling Asset Management to trade and settle securities immediately and electronically.

The dematerialization of locally issued Government of Jamaica (GoJ) securities has allowed for quick transfer of ownership and greater efficiency in the market, said Dave Cameron, Sterling Asset manager of fixed income securities trading.

“The new system has created a new market of service that never existed before. This has eliminated the hassle of selling, registering and re-issuing certificates which used to take months. Now the transactions are immediate and can be settled in minutes,” he explained.

Another factor that has created a window of opportunity for securities dealers, Cameron said, is that the Government of Jamaica (GoJ) has become less involved in the primary debt market.

“With the IMF programme and the introduction of the JDX, the GoJ has reduced its direct involvement in the primary market and has lessened the frequency with which it comes to the market to borrow funds. As a result, there is more money in the marketplace for the secondary market players like Sterling Asset Management to trade,” he said.

According to Cameron, this trend, coupled with the ease with which the instruments can be bought and sold, has made trading in bonds more attractive.

The latest member of the Sterling Asset trading team, Eugene Stanley – manager of securities trading – noted that: “As a consequence of the ongoing decline in interest rates since JDX and the resultant negative impact to the ‘bottom line’ of some companies, some investors, who traditionally bought and held bonds to maturity, have been demonstrating greater willingness to “rotate” their portfolio and in the process have been realising attractive capital gains.

“Similarly, other investors who principally invested in short-term reverse repurchase agreements have been buying the longer dated GoJ securities for the yield pick-up and then liquidate their positions on the secondary market when the funds are needed.”

Sterling Asset said it continues to try to educate institutional and individual investors of the benefits of outright ownership of financial instruments compared to the traditional reverse repurchase agreement.

In addition, the traders at Sterling Asset have expressed the desire for the organisation to become market leaders in this area and to provide liquidity for any client who wishes to buy and sell bonds.