Weakness in regulatory oversight affecting market efficiencyWednesday, October 20, 2021
INVESTIGATIONS carried out by the Jamaica Observer, looking through seven years' worth of data, indicate a record of poor rule enforcement by the Jamaica Stock Exchange as well as deficiencies in market communication as the factors which have impacted the ability of the investing public to process information on a timely basis.
A review and examination of market activities since July 2016 show weaknesses have emerged in the administration of the Jamaica Stock Exchange Group (JSE), which consists of the JSE and Jamaica Central Securities Depository.
The issues include timely publication of annual reports and quarterly statements; lax regulatory reporting; incorrect dividend notices and unpaid dividends from JSE subsidiary Jamaica Central Securities Depository (JCSD).
In relation to the publication of annual reports, the JSE should place — on a timely basis — the soft copy of annual and quarterly reports on their website for the entire investing public to have equal access to information.
In January 2020 the Business Observer contacted the JSE's Regulatory & Market Oversight Division (RMOD) about an October 2019 regulatory report which outlined Express Catering Limited (ECL) and Margaritaville Turks Limited (MTL) as being late in the submission of its annual reports to the JSE. Shareholders received a copy of this annual report in the mail before the deadline for publication.
Andrae Tulloch from the JSE's RMOD admitted to the Observer that the hard copy of the report was received late, but the soft copy was never filed on the JSE's website.
Following the query, Express Catering's and Margaritaville Turks's annual reports were published the following week. Tulloch explained that the issue was one of which RMOD was aware and on which work was being done towards resolution.
However, despite this first encounter, the Observer had occasion to email RMOD through Tulloch on several occasions about late or missing annual reports last year, including those that should have been published by 138 Student Living, Main Event Entertainment Group, Jamaica Broilers Group, Radio Jamaica and INDIES.
To these were added Cable Bahamas (CAB11A), whose 2019 annual report was published on the JSE's website one year late and only after the Observer queried the issue. The report was available on Cable Bahamas's website along with every other report. The difficulty with such practices is that some shareholders would be privy to the information about a company while the rest of the investing public would be left in the dark. The JSE is the primary source of public disclosures for many, since many companies do not have websites nor do they publish such information otherwise.
The challenge also relates to late or missing quarterly reports. The public was led to believe that AMG Packaging and Paper was late in the publication of its 2020 reports for the second and fourth quarters.
The Jamaica Observer reached out on Friday, May 29, 2020 to RMOD about AMG's missing second-quarter report. The relevant JSE rule was highlighted, with the note that the company could have been suspended for being 45 days late in the publication of its second quarterly results.
In response, AMG's report was published on a Saturday, which is normally against JSE's principle of publishing documents on the weekend. The Monday after, RMOD head Tulloch responded to say AMG had filed its report on time, without addressing the problem of the JSE not publishing it in the first place.
Five months later, the same issue arose with AMG's unaudited fourth-quarter results not being published 45 days after the end of its financial year, leading one to assume that the company was filing its audited financials in 60 days. AMG's financial year ends on August 31 each year. It should publish unaudited fourth-quarter results by mid-October or failing to do so, publish final audited results by the end of October, which would be 60 days after the end of its financial year.
However, October ended without the financials being published and Tulloch was contacted again about the delayed report. It was subsequently published the next Monday — one week after the end of the 60-day publication period. Meanwhile, JSE's RMOD date stamped the scanned report October 14, 2020, which was nearly three weeks after they received it. Please note, according to JSE rules, companies can opt to skip the publication of unaudited fourth-quarter results in lieu of publishing their audited financials for the whole year within 60 days of the end of the financial year. The end of the fourth quarter is also the end of the company's financial year. However, in wishing to skip the publication of fourth-quarter results the company would normally advise its shareholders of this intention through a release sent to the JSE. If companies publish fourth-quarter results, they would then publish their audited results in 90 days.
Even in 2021, Portland JSX's first-quarter report was published a day after its annual general meeting on September 16. This was two months after the deadline for submission while the report could be accessed on the Portland JSX website.
The JSE is also making errors on company dividends, insider trades and even publications.
Other errors relate to incorrect reporting of dividend notices and late reporting of regulatory matters. In July 2020 Indies Pharma sent the JSE a notice about their dividend which was declared at their board meeting. The dividend, based on the wording, was 0.14 cents ($0.0014) which was subsequently updated to 14 cents ($0.14).
In 2020 the JSE published a notice of resignation for LAB's consultant nearly three weeks after securities dealer Mayberry had published the disclosure on their website.
Additionally, an insider trade notice for LAB which occurred in October 2019 was mentioned in the June 2020 Regulatory Report released in November 2020. This is, in effect, one full year late — a period over which the information would have been useless to anyone trying to track these events and find out about potential breaches by a company.
During the week of November 1, 2020 the JSE also published a disclosure about an insider trade with LAB that was incorrect. The first disclosure said that a connected party had sold 4.5 million units of LAB on October 30, which was inaccurate since no more than 4.15 million shares traded that day.
A day later, a new disclosure was published which outlined the full connected nature of the transaction along with the correct unit movement. The original notice was changed to 4.1 million when it was, in effect, only one transaction and was subsequently deleted since it was a double-entry disclosure.
Incorrect Dividend Details and Processing of Dividends
As more people become aware of mandates and getting their dividends, the JCSD, a subsidiary company of the JSE, has been dropping the ball even further in paying shareholders and processing these dividends correctly.
In August 2020 Supreme Ventures, which had just transferred its registrar operations to the JCSD earlier in the year, paid a dividend to shareholders of $0.0714. However, upon receiving the dividend stub, an incorrect rate of $0.25 was discovered.
Although the net payment amount was correct, the higher figure in the dividend notice could have caused speculation among Supreme Ventures' shareholders who would have thought they were being underpaid.
One improvement has been the JCSD push to make more persons sign dividends mandates as an option so dividends are received without issue going forward. A dividend mandate explains to the registrar of a company where and who should receive dividend payments. Nevertheless, the execution has been poor which only proves that there needs to be external guidance on navigating this transition.
One investor even showed us email sent to the JCSD about his US-dollar dividend mandate twice within a 3-month span, only to get his US-dollar dividends deposited to his JMD bank account and converted at the buy cash rate by his bank.
Sygnus Credit Investments Limited (SCI) has been listed on the JSE since June 2018 and has paid out approximately US$6.25 million in dividends. Although most of these funds have been paid, several shareholders are yet to be paid their dividends for 2019 and possibly even for 2020.
Contacted by the Jamaica Observer, manager of the JCSD's Registrar Services, Michelle Sirdar told one investor that she was aware of the error in payment and that the payment would be made soon.
One bank disclosed that it had received several inquiries by clients about Sygnus dividends which were not received. To this day, some payments are still outstanding.
At Sygnus Credit Investment's AGM in November 2019 it was discovered that even the founders themselves hadn't been paid their dividends, along with other shareholders who were present.
Some investors have been trying to collect outstanding payments for as long as two years, to the knowledge of the Jamaica Observer.
As a listed company, the JSE is directly affecting a company's price through improper management of that company's dividend payments.
Other companies have had to endure the brunt of shareholder comments about missing dividends when it is at times a JCSD issue. This is compounded by the pricing errors. Sygnus Credit Investments JMD had a price of $17 one day in 2020, $0.14 the next and $17 the following day — which all affect investor perception.