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Caribbean Management Talk

The Promise of Transition

Author: Staff
Last Update: Jan 16, 11:36 AM ET

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Marlon Yarde
In just over 20 years Barbados has set the foundations of securities trading as the Eastern Caribbean nation has witnessed a major shift in its economy from the export of sugar to tourism.
Barbados Stock Exchange
The local newspaper owned by Nation Corporation and is part of a conglomerate, One Caribbean Media with a presence both in Barbados and in Trinidad and Tobago and is listed on the exchanges of both countries with a market cap of US$184 million.

Q: How many brokers are members of the exchange? What is the daily trading volume in terms of the number of stocks and in terms of the market value and stock market benchmark index performance?

Under our current ownership structure, to be a broker you must be a member of the stock exchange. Currently we have about sixteen ordinary members along with four designated members. Of the sixteen ordinary members nine are brokers in the marketplace. In addition, you also have to be licensed and registered with the Securities Commission here in Barbados to be a broker in the Barbados market.

In terms of trading activity, for the first six months of 2008 the total volume of shares traded on our board was just over 71 million shares. This compares to 142.4 million last year. The total value of shares traded for the in 2008 is 491.5 million shares as opposed to 471.5 million shares last year so we are down about 50% compared to last year. The average daily share volume is approximately 583,565 shares compared to 1.2 million last year and the average daily share value is $4 million Barbados dollars or US$2 million compared to B$4.2 million in 2007. The number of trades that occurred so far for the first six months of the year is about 2,529 and the average share price traded is B$5.37 as opposed to B$4.90 a year ago. The advance decline ratio was 13 to 7 on June 30, 2008, as opposed to 10 to 9 meaning for every 10 advancers there were 9 decliners in 2007.

We currently classify our market under three categories. Local, which tracks the performance of local listed companies only, cross-listed, which represents the performance of companies listed on our board but the home market is elsewhere and composite which tracks the performance of the overall market. A year-on-year comparison of the index performance at June 30th 2008 shows increases of 18.44%, 7.07% and 13.53% for the local, cross-listed and composite index respectively.

In terms of market capitalization, the local market capitalization increased 19.36% from B$9.8 billion dollars or US$4.9 billion to B$11.78 billion. The cross-listed market capitalization declined by 42% falling from B$7.4 billion dollars to B$4.3 billion dollars. This decline was mainly because of the delisting of companies. The composite market capitalization on June 2008 compared to June 2007 declined by 7.28% moving from B$17.375 billion to B$16.109 billion dollars.

Q: What is the exchange doing to improve the liquidity or trading volume?

We are approaching these dual problems in three main ways. First we are taking a look at our rules and seeking to ensure that we make our market more efficient. This is an ongoing process which we are working along with the Securities Commission. Currently we are in the final stages of implementing a new price stabilization rule and over the coming days we will meet with market actors to sensitize them about the implication of the new rule. There is a 10% cap on how much share prices can move in one day. We are removing that cap and in cases where the share price moves above or below 10%, we can halt the trading in that security to ensure there is a reasonable explanation for the share price movement. The goal is to ensure that market forces dictate how share price moves on our market.

Second at a procedural level we intend to eliminate the need for Share Transfer Forms for book-entry transactions. This is a relic from the time of manual trading and we believe that their removal will mean a more efficient and liquidity market.

The final way in which we are tackling the issue is through education. As mentioned earlier we recognize that most of the Barbadian public shy away from equity investing because it is not familiar to them. We believe that this attitude can only be changed through education and as a result we have been actively involved in public outreach by using panel discussions, presentations and producing educational material.

Q: When was the last seat on the exchange sold or the last membership sold?

In 2006, the last member came on board the stock exchange. The membership price is about US$5,000 and we still have seats available.

The valuation calculation in the demutualization process would be based on the net value of the stock exchange. Our net assets or our working capital is in the region of US$13 million. One of the things we have decided from the beginning is that we are not going to be paying out cash to our members. What is going to happen is that members will be getting an equity holding which can eventually be converted to cash.

Currently, there is not a need for us to raise capital. We are cash rich. One of the initiatives that we are working on now is to purchase our own building. We are working on several initiatives to enhance the continued viability of the exchange.

Q: What are the growth initiatives that the exchange is pursuing?

To help improve the investment opportunities for investors we need to attract more companies to list on our board. We want to set up of an international trading floor where we can list international securities or companies. This would capitalize on the bevy of double taxation treaties that Government currently has in place.

Q: How many private companies are there in Barbados?

I do not have that figure. However, we have many private companies to target in Barbados. We have a strong commercial banking sector. Private companies might opt to go for debt finance in through commercial bank rather than go to the market to raise equity financing. The reason is two-fold. They might be concerned about the regulatory oversight involved in being a listed company and they may not wish to disclose their financial information.

Q: How is the exchange trying to go beyond stocks and include futures, options, derivatives or debt securities?

We do recognize the need to diversify beyond equities and we are working to develop a secondary market for trading government securities. At this time we are working with the Ministry of Finance with the view to having our subsidiary the Barbados Central Security Depository, managing all government paper in Barbados. One of the things that we want to push when we do this is that we to de-materialize the issue of government paper in Barbados. This is likely to create greater activity in these types of instruments.

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