Government is preparing legislation aimed at strengthening the regulatory and supervisory regime in accordance with international best practice as developed by the International Organization of Securities Commissions (IOSCO), Minister of Finance and the Economy Larry Howai said on Monday.
Delivering the feature address at the Council of Securities Regulators of the Americas (COSRA) meeting at the Hyatt Regency Trinidad, Howai said: “The proposed legislation will be laid in the Parliament, this week and is intended to replace the existing Securities Industry Act, 1995. As the chairman of the SEC has described, the purpose of the Securities Bill 2012 includes strengthening protection for investors from unfair, improper or fraudulent practices; fostering fair and efficient capital markets, promoting confidence in the securities industry in Trinidad and Tobago and reducing systemic risk.”
He said the new Bill “seeks to address deficiencies in the previous Bill relating to regulator access to records of market participants, sharing information with other regulators, record-keeping and confidentiality provisions. Failure to enact this Bill into law this year will result in Trinidad and Tobago being blacklisted by IOSCO. We cannot afford to find ourselves in such a situation in which we are unable to comply with these international standards, as the consequence for our securities market in such an event would indeed be dire.”
He told his audience of securities regulators from across the Americas, “In a strong regulatory environment, the securities market will provide channels for reallocation of savings and investments, and a linkage between the savings and the preferred investments across listed companies. The securities market will enable all individuals to share in the increased wealth created by competitive enterprises.”
He said that a well regulated securities market will allow individual investors, who lack the wherewithal to start and manage an enterprise either because of insufficient resources or entrepreneurial ability or both, to invest in the stock of a listed enterprise.
Act good for market
He said a well regulated securities market will also “facilitate the internationalisation of an economy by linking it with the rest of the world in the form of inflow of capital for portfolio investment. Moreover, a strong domestic stock market performance forms the basis for good performing domestic corporate entities to raise capital in the international market. In so doing, the domestic economy opens up to international competition pressures, thus enhancing efficiency.”
He said he also anticipates that “a well regulated domestic securities market will deter capital outflow by providing attractive investment opportunities within our domestic economy.” Turning to the stock exchange and “taking a look at a few statistics on the performance of domestic equities we see it has not been buoyant as in the recent past,” he said. The market enjoyed a favourable run throughout 2011 but has not sustained this momentum thus far into 2012, he acknowledged. Between October 2011 and June 2012, the Composite Price Index (CPI) increased by a meagre 3.3 per cent, compared with an increase of 15.6 per cent in the same period last year.
“This probably reflects the completion of the reallocation of portfolios by investors which eliminated the arbitrage opportunities between the dividend yield on stocks and (the) rate (of) return on money market mutual funds,” he said. Moving in tandem with the change in the CPI, stock market capitalization rose to $97.8 billion at the end of September 2012, up from $92.3 billion at October 2011. The volume of shares traded between October 2011 and June 2012 declined by 22.2 per cent to 45.6 million shares traded with a market value of $491.7 million, as compared to 58.6 million shares traded at a market value of $733.9 million during the same period a year earlier.
In the six months to March 2012, activity in the primary bond market “seems to be recovering with a total of nine bonds issued, carrying a collective face value of $2.8 billion, compared with only three issues with a collective face value of $2.6 billion in the same period a year earlier,” he said.
He told regulators at the conference that this period “was characterised by a low interest rate environment, which encouraged borrowers to secure long-term funding at fixed rates, which is reflected in the fact that seven of the nine bonds issued carried maturities of 10 years or more and were all fixed rate securities.”
Asking himself “How do we dynamize the local securities industry?” he responded: “Our stock exchange is ripe for an injection of fresh investments and the Government of Trinidad and Tobago is intent on breathing new life into the securities industry.”
He recalled that in the 2013 Budget Statement, “we signalled our intent to add some dynamism to the domestic securities market by listing three state-owned securities. These three new Initial Public Offers or IPOs would feature First Citizens Bank Limited (FCB); the Trinidad and Tobago Home Mortgage Bank (TTMB) - which will be (an) amalgamation of Trinidad and Tobago Mortgage Finance Company and the Home Mortgage Bank; and the CLICO Investment Fund comprising Republic Bank Limited shares.”
In bringing the CLICO matter to an end, 25,115 Short-Term Investment Products (STIPs) holders, which comprise individual and corporate investors, accounting for $10.268 billion “have accepted the Government’s settlement offer,” he told the gathering. “Government intends to launch the CLICO Investment Fund in the next few days, and on January 2, 2012, trading will begin on the Trinidad and Tobago Stock Exchange for the units of those persons who exchanged their 11-20 year bonds for units in the CLICO Investment Fund. Investors would now have an opportunity to participate in the share ownership of the IPOs of First Citizens, and the Trinidad and Tobago Home Mortgage Bank and the CLICO Investment Fund,” he said.
The finance minister said the listing of the two state companies and the CLICO Investment Fund on the domestic exchange is “in accordance with one of the stated objectives of the COSRA, which speaks to the implementation of regulatory, legal and structural reforms to facilitate broad-based participation in the securities markets, and where appropriate, to provide a means for wider ownership by the people of state-owned business in the Americas.”
Despite T&T's capacity problems such as the thinness of the number of listed companies, and the low volume of trades over certain periods, this country was the fifth best performing exchange globally for 2011 as indicated by the Business Insider website, Howai said. “The TTSE was among the 11 exchanges worldwide to end the year in positive territory. This is a significant achievement for a small developing economy and a source of motivation for us to strive to do even better,” he said.
Speaking about “prospects” and giving an “outlook for the local industry in the medium to long term,” the finance minister said that “with a facilitative regulatory environment, additions to the number of companies listed on the domestic stock exchange and the necessary level of skill and IT infrastructure in place, the Government expects the domestic securities market to perform its prime functions of allocating risk and providing access to financial capital for local and regional firms in a more effective manner. This will greatly assist our economic growth by creating incentives to stimulate investment in Trinidad and Tobago.”