The Guyana and Barbados Stock Exchanges on Friday signed a Memorandum of Cooperation (MoC) and Minister of Finance Winston Jordan said he hoped the alliance will lead to local financial literacy being improved.
“Financial literacy is important to the proper functioning and intermediation of the financial system. There is no doubt that financially-literate businesses will choose to lower the cost of borrowing by issuing shares, and investors with a high level of financial literacy will diversify their investment portfolio by purchasing shares in profitable businesses,” Jordan told attendees at the signing of the MoC, which was held at Herdmanston Lodge, in Georgetown.
He urged the Guyana Association of Securities Companies and Intermediaries (GASCI), which was Guyana’s signatory to the agreement, to find ways of narrowing the financial literacy deficit in Guyana. He said that with support from his government, he believes that it can be done through “undertaking a financial literacy programme to ensure that Guyanese in the near and far reaches of the country are made aware of the benefits of participating in the local stock market.”
Also present at the signing were Managing Director of the Barbados Stock Exchange Inc., (BSEI) Marlon Yarde, Chairman of the Guyana Securities Council Rawle Lucas, General Manager of GASCI George Edwards and Chairman of GASCI Nikhil Ramkarran, among leading banking, insurance and business organisation representatives.
Minister of Business Dominic Gaskin welcomed the agreement and said that he believes that “it is important for Guyana to look outwards… and develop partnerships with businesses in other countries.” He noted that it not only shows confidence in Guyana’s stocks but provides more visibility for Guyana’s stocks to be traded on a more popular exchange.
With Guyana set to begin oil production early next year (Jordan said that there is talk that it could be later this year) and the numerous opportunities for the service and other industries here, the Minis-ter of Finance said that government wants to ensure that locals are equipped to actively participate.
“The transformation process, however, requires significant inputs from the local private sector. The government is developing an appropriate local content mechanism. However, in order for local industries to equally participate in the provision of goods and services at all levels of the oil and gas value chain, access to affordable and adequate financing must be readily available,” he stressed.
Further, he added, “an efficient stock market can play a critical role in this process, by providing financing that serves as a complement to the more traditional forms, such as commercial bank lending.”
‘Expanded pool’
Jordan said he believes that the cooperation between the two stock exchanges can help to deepen the CARICOM integration process and bring along additional benefits to both sides. “There is no doubt, ladies and gentlemen, that it will provide an expanded pool of finance for investors, and will provide the opportunity to benefit from, and be a part of, successful businesses in both jurisdictions. The issuers’ recognition can also be strengthened and the image of the companies’ product enhanced in both jurisdictions,” he stated.
While Guyana has established a Stock Ex-change since mid-2003 and there has been tremendous technological advancements since then, Jordan lamented that trading was still conducted through a “primitive process,” where it is done weekly “via word of mouth on the trading floor, supported by an electronic limit order book.”
The Government of Guyana, according to Jordan, has been placing much emphasis on financial sector reform and development; addressing the issue in a holistic manner, to ensure that a diverse financial system is established and includes a capital market and a banking sector that is efficient, stable and equipped to respond to shocks.
To that end, he said his government has enacted legislation and amended existing laws to strengthen the Bank of Guyana as the regulatory authority for the commercial banks and the non-bank financial institutions and putting measures in support of the development of the local stock market.
He pointed out that government has received support from the Common-wealth Secretariat to re-write the Securities Indus-try Act of 1998, which governs the operations of the Guyana Securities Council that regulates the Capital Market in Guyana. “The draft bill and accompanying regulations have been with the Attorney General’s Chambers for final review for some time now, and we expect that these can be finalised and presented to the National Assembly for passage before the end of 2019. The idea of re-writing the existing laws stemmed from the need to ensure that the capital market operates in a fair and efficient manner, with minimum systemic risks and a high level of protection for investors. The new law is consistent with international best practices, including the principles adopted by the International Organization of Securities Commissions and the CARICOM Model Securities Legisla-tion. It provides a modern and robust framework for the development and operation of the Securities sector, and puts greater emphasis on oversight and supervision, reduction of systemic risks and financial stability,” he explain-ed.
“As part of the overhaul and strengthening of the financial architecture, the World Bank is currently providing financial and technical assistance to the Government of Guyana to implement a modern and electronic Payment Sys-tem. Two key deliverables of this project are a Real-Time Gross Settlement System, and a Central Securities Depository for electronic record keeping and electronic settlement of securities. These features will reduce transaction time, reduce the risks involved in the trading of securities, and make trading more convenient for all market participants,” he added.
While an electronic payment mechanism will be new to Guyana, the Barbados Stock Exchange has been operating under a fully electronic trading regime since 2001 and Jordan believes that the current partnership provides an opportunity for Guyana to learn from Barbados’ experience.
‘Collaboration trumps competition’
Meanwhile, Yarde explained that the BSEI’s Chairman could not make the signing but that he wants it known that the initiative originated with and has the “full blessings” of the Boards of BSE and its wholly-owned subsidiary, the Barbados Central Securities Depository Inc. (BCSDI).
He said that the signing signifies not only a MoC between the two countries’ stock exchanges but that it has great potential in deepening the longstanding relationship between Georgetown and Bridgetown.
Yarde posited that the collaboration bodes well for both sides, even as he explained why Guyana was chosen by BSE. “First, it is better to collaborate and, or cooperate with your neighbuor who is larger than you than to compete with them. Collaboration trumps competition. I am not saying we will not compete in some instances, but I believe that it is more mutually beneficial that we collaborate. Secondly, we believe that there is huge potential and opportunity in Guyana, we at the BSE want to be on the ground floor, so to speak, so that when this ‘proverbial escalator’ starts to ascend we would not be perceived as an opportunist or worse yet, a “Johnny-come-lately,”” he said.
“Despite being both relatively small exchanges at varying phases of our respective life cycles, I believe that both the BSEI and GASCI can benefit from various initiatives conducted under this MoC,” he added.
The two key areas of interest identified in preliminary discussions between the two has been that of institutional strengthening and the cross listing of securities.
In terms of institutional strengthening, he said that the BSE stands ready to assist the GASCI in an advisory capacity, as it relates to improving existing systems and processes, or if need be, in developing an entirely new framework allowing it to transition to the next stage.
“However, as clichéd as it may seem to say, there is no need to reinvent the wheel. We are in the same line of business and, barring any jurisdictional peculiarities in our regulatory and operational frameworks, we conduct business in very similar ways. I assure you, whether it be assistance with legislative or rule- based changes or improving the technologies employed to facilitate the trading, clearing and settlement of shares traded, GASCI can rely on myself and my team at the BSE and our wholly owned subsidiary – the BCSDI – to lend assistance wherever possible,” Yarde noted.
As it relates to the cross-listing of securities, he believes that there may be companies in Guyana that can benefit from listing and trading their securities on the BSE. “The decision to cross-list the issued and outstanding shares of a company ultimately resides solely with its principals. While there are several considerations which should be made prior to such a decision, I believe the benefits that can be derived from maintaining a dual listing – both tangible and intangible – far outweigh any concerns that principals may have,” he said.
“A primary benefit of cross-listing is that of greater market liquidity giving the organisation the ability to raise more capital in other capital pools. Restricted or constricted market liquidity appears to be a shared problem in both our jurisdictions. However, the recent liberalisation of interest rates within the commercial banking system in Barbados coupled with a recent debt restructuring programme conducted by the Government of Barbados have left many investors seeking out new opportunities to, as we say at home, ‘turn a dollar,’” he added.
The BSE boasts that it can provide a capital formation mechanism, allowing companies to obtain low cost capital, unlocking their intrinsic value, raising funds required to facilitate growth and expansion locally, regionally and internationally while establishing a fair market value which can be used to negotiate future business if need be.
“We also foster an investing culture, converting traditional savers into investors through education. The investing opportunities provided through stock exchanges – equity and debt instruments – can, over time, yield greater returns than traditional offerings within the commercial banking sector. Stocks and bonds provide additional revenue streams for investors in the form of dividends and interest payments which, if not squandered, may have the potential to improve quality of life,” he said.
Noted by Yarde was that Guyana has no central securities depository (CSD) and it could be an area that the BSEI and GASCI can work on establishing in the future. “We utilise a CSD system that is very efficient and functionally rich and would be more than willing to share related information and skillsets with the GASCI should they be desirous in the pursuit of such an exercise,” he said.
And while he noted that small exchanges such as BSEI and GASCI experience greater challenges to deliver, as they do not enjoy the “same luxuries of economies of scale as compared to larger exchanges,” he said he firmly believes that both countries should not let that deter them from forging ahead with investments. “Our societies have been built up on traditional concepts of debt financing and savings rather than equity financing and investing. Shifts in paradigms are required, and today’s signing signifies such a shift. We cannot let our size prohibit us from achieving our true potential and forging alliances such as this, in my opinion, are more than a step in the right direction,” Yarde added.
