Supranational securities commission needed for single capital market – COFAP
ADRAFT Caricom policy statement on the development and regulation of a regional securities market is proposing the development of a single set of legislation across the bloc aimed at creating an integrated capital market.
A single capital market has been a longstanding ambition of the trading bloc, but as noted by the Council for Finance and Planning, COFAP, the absence of a supranational securities commission has held back progress.
The draft policy speaks to the creation of such a body – a “Supervisory Authority” with powers of oversight.
A series of national consultations on the policy and the model law that would
underpin it were proposed to be finalised by
September 30.
At the July 4-6 Caricom summit in Montego Bay, the Conference of Heads also mandated COFAP to finalise instruments for an investment policy and investment code,
and an integrated capital market, starting with model securities legislation, by July 2019.
The draft policy paper issued and considered by COFAP at a meeting in Guyana in June, diagnosed securities
markets across the bloc as underdeveloped with a tendency to be small, non-transparent and unsophisticated.
Fragmented markets
The council also noted that the markets are “fragmented with multiple regulatory authorities with different securities laws and legal traditions, mandate and powers”.
For example, some of the securities commissions are integrated financial supervisors – Jamaica and The Bahamas – with responsibility for the entire non-bank sector; while other jurisdictions – Trinidad & Tobago and the Eastern Caribbean – have dedicated authorities to regulate the securities markets.
In Haiti and Suriname, the central bank is the supervisory authority for the securities market. And the Eastern Caribbean Central Bank also oversees a regional government securities market for members of the Eastern Caribbean Currency Union.
“Progress in creating an integrated market for issuing and trading securities has also been stymied by the absence of a supranational authority with powers to
direct and regulate a regional securities market,” said the council.
To bring cohesion to the market, COFAP is proposing the “formulation of a model securities market law and related regulations; alignment of national securities laws with the model law; and adoption of mutual recognition protocols for the passporting of approvals across member states, all resulting in a single legal space for the functioning of securities business”.
Most member states have established an active Treasury bill market, said COFAP, but few jurisdictions have been able to move beyond this first stage of capital market development.
It lists the most developed securities markets as Barbados, The Bahamas, the Eastern Caribbean, Jamaica and Trinidad & Tobago where the product offering includes shortand long-term fixed-income securities, equities and collective investment funds. However, the jurisdictions differ in market size, complexity of product offerings and the level of market development.
There are also nascent markets in Belize, Guyana, Suriname and Haiti, but these are mainly in government securities.
The issue of going public
The use of equity financing is growing, but Caricom firms are still largely reluctant to go public.
The paper did not go into specifics, but in Jamaica, for example, while the Companies Office register holds tens of thousands of businesses, less than 80 are listed on the stock exchange, even with the spike in initial public offerings that occasioned the launch of a junior stock exchange nearly a decade ago.
Stock market wealth in Jamaica, now at about $1.25 trillion (US$9.6 billion), continues to set new records. Trinidad, which has far fewer listings on its exchange, is capitalised at nearly TT$90 billion (US$13.2 billion), excluding cross-listed securities. Stock market wealth in Barbados, which is the smallest of the three, is about BDS$6.4 billion (US$3.2 billion), also excluding cross-listings.
“While there are several functioning stock exchanges in Caricom, these exchanges are individually small and illiquid, and their combined market capitalisation is relatively low compared to that in other emerging markets,” the paper noted.
But it also acknowledged that there were deterrents to listing, namely onerous disclosure and reporting requirements, fear of loss of control of the business and high fees.
COFAP did not quantify the size of the Caricom capital market.
The council concluded, however, that a lack of longterm financing has held back economic growth in the bloc, while asserting that member states have encountered significant challenges in mobilising financial resources within the region, partly as a result of the lack of progress in achieving a single market space for raising capital.
Differences in legal and regulatory regimes and business practices, have added to the complexity and cost of conducting securities business, COFAP added.
To get to a level playing field, the council is proposing common standards for regulatory matters relating to authorisation of issuers and securities, prospectus disclosure rules, and the licensing of market intermediaries.
COFAP also recommends common standards for rules regarding conduct of business; standardisation of breaches and co-operation in the enforcement of securities laws, and determination of the Supervisory Authority’s powers to conduct inspections and investigations; and rules for the registration of all securities prior to being issued or traded, unless they qualify for a prospectus exemption.