THE Jamaica Stock Exchange (JSE) has formally established its new Micro Market as a second tier of the Junior Market, allowing smaller companies to access the same income tax concessions while subjecting them to additional governance and investor-protection requirements.

Ten companies were initially identified at the market’s June launch, while the Government subsequently said a wider pool of 25 Jamaica Business Development Corporation (JBDC) accelerator graduates had been identified as potential candidates.

The JSE published the rules in July, less than a month after the formal launch on June 23 at the Terra Nova All-Suite Hotel in Kingston. However, instead of creating an entirely separate rule book, the JSE has integrated the Micro Market rules into the Junior Market rule book.

“The Micro Market operates as a sub-segment of the Exchange, utilising the existing Junior Market rules as its primary regulatory foundation, subject to the modifications, exemptions, and enhancements set out in these Rules,” the rule book stated.

Under the new rules, which came into effect on April 13, the existing Junior Market has been designated Tier 1, while the Micro Market has been designated Junior Market Tier 2. Junior Market Tier 1 rules generally apply to Micro Market companies, subject to the specific modifications, exemptions and additional requirements established for Tier 2.

This allows Micro Market companies to benefit from the same income tax concessions afforded to companies that list on Junior Market Tier 1. Companies listed on the Junior Market currently benefit from a 100 per cent income tax remission for the first five years after listing, followed by a 50 per cent income tax remission for the next five years.

Companies seeking to list on the Micro Market will be required to raise between $50 million and $100 million in their initial public offering (IPO) through the issuance of new shares. A company must have at least 50 shareholders who own at least 20 per cent of its participating voting shares.

Prior to listing, the issuer must have a sponsor, an individual or entity that provides ongoing strategic, governance or developmental support to the company. The sponsor is required to make a material equity investment not exceeding 10 per cent, which must not be financed directly or indirectly by the potential Micro Market company. A Micro Market company must disclose the identity of its sponsor, the sponsor’s investment and the nature of support provided.

Although Micro Market companies might have fewer resources than larger companies, they face enhanced governance requirements designed to protect investors and maintain market integrity. A Micro Market company must have at least three independent non-executive directors, an approved JSE mentor and an audit committee. The audit committee must have at least three independent directors, with at least one member having a financial background.

While some requirements differ between Tier 1 and Tier 2 companies, the Micro Market also introduces an external-auditor assurance requirement that does not apply to Tier 1 Junior Market companies.

“Micro Market issuers shall provide a reputable external auditor assurance of strong internal control systems to support preparation of financial statements and timely financial reporting to the JSE and the market,” Rule 1005 states.

After a Micro Market company lists, its sponsor must serve for at least 24 months, subject to the conditions of the sponsor agreement. However, companies must maintain both a sponsor and a mentor while listed on the Micro Market. There is also a 10 per cent ownership restriction on Main Market and Junior Market companies or their connected persons.

If a Micro Market company’s share capital exceeds $100 million, the company must migrate to Junior Market Tier 1 or the Main Market within three months after exceeding that cap. The JSE may give the company an additional three months before it must migrate to the higher-tier market.