Mon | Jun 17, 2019

Two-step rollout for social stock exchange - Donation site goes live January; second phase awaits legislation

Published:Friday | November 9, 2018 | 12:00 AM
JSE Managing Director Marlene Street Forrest.

The project to create a social stock exchange in Jamaica will be executed in two phases, the second of which requires the passage of legislation.

That, however, will not stall the launch of the project in January when the first component - the Jamaica Social Investment Exchange, or JSIX - which will facilitate fundraising by not-for-profit enterprises through an online platform, will start to operate.

The social exchange is the latest platform developed by the Jamaica Stock Exchange to facilitate the listing and trading of shares and other securities. The JSE's last project of this scale was the junior stock exchange, which was also backed by legislation to incentivise listings through tax waivers.

As a snapshot on the prospective market, JSE cites data that values the not-for-profit and NGO sector at around 3.5 per cent of Jamaica's US$17-billion economy - which would be about US$600 million.

People, planet and profit

The JSE, through its main, junior and USD markets, currently facilitates trading in stock market wealth of $1.5 trillion or US$11.7 billion, and growing.

The exchange's documentation on the new project defines a social enterprise as a business whose focus is on the triple bottom line of people, planet and profit, and whose mission is to solve social, cultural, economic or environmental problems at the community or national level. The legislation being drafted will adopt this definition, which has already been incorporated in the Government's MSME policy.

A working group is currently engaged in fact-finding with various interests to make recommendations on what elements the legislation needs to include; but as to when they are to wrap up their findings, JSE Managing Director Marlene Street Forrest said that date has not yet been pinned down.

Under the first phase of the project, organisations can apply to list their projects on the JSIX website for donations to finance their start-up or to expand. Projects listed on JSIX will be able to raise anywhere from $5 million to $25 million per project.

Prospective investors will be given access to the JSIX website to select the project they wish to invest or hold shares in, and donate through the platform. In turn, they will receive 'social shares'.

Donors will be issued with receipts for tax purposes, or, where applicable, to facilitate refund of their donations.

The second phase of the project - called the Jamaica Impact Investment Exchange, or JIIX - will allow investors to hold tradable shares in the social enterprises that list on the social platform. But this aspect awaits the passage of legislation to facilitate its operation. On the finalisation and implementation of that phase, social shares acquired under JSIX will be tradable under JIIX.

"For phase two, which is the JIIX, a date has not yet been set, as we wish to launch this segment after legislative changes, which will be passed in relation to social enterprises," says Street Forrest.

"There is a framework which is being prepared for submission in Parliament which will go along with that. JIIX enterprises pay dividends on shares, which may appreciate or depreciate in value, just like any other share."

But, Street Forrest also emphasised that interest in such enterprises lies in the works that they do, and not the value of the shareholding.

Hope for tax incentives

The JSE is hopeful that the new law will include tax incentives for the social exchange, but Street Forrest says she can't say for sure that it would end up in the legislation.

In the meantime, in preparation for the January launch, the JSE is "tidying up" the website for projects to list, and is weighing plans to drive public awareness of the new platform. To that end, the exchange is running a logo and tagline competition for JIIX and JSIX that will dole out prize money of $100,000.

The JSE is also creating a new operating unit to administer the social exchange, but which will draw support from current divisions of the Harbour Street, Kingston-based exchange.

To qualify for listing on JSIX, the projects will go through a five-step selection process, which includes a site visit. Three evaluation rounds will be held annually, ending February 15, May 15 and August 15, to select projects for listing.

Organisations that qualify for the platform will have to file quarterly and semi-annual reports concerning the activities, progress and status of their projects throughout the listing period, in a format designated by JSIX.

The funds raised by each listed project will be distributed to them after donations reach 100 per cent of the funds targeted, net of fees.

The enterprises will be required to self-generate 10 per cent of the funding required for the project they are listing on JSIX. All of the funds raised through JSIX will attract a 10 per cent surcharge as administration fee and debited from donated funds.

Street Forrest says that on the JSIX website, donors will have the option of making either 'project specific' or 'general' donations - she refers to the latter as a "keep the change" programme for donors who want to ensure there is a pool of funds that can assist any programme.

Funds that are donated for 'general' purposes will be deposited to a JSIX Consolidated Fund account, proceeds from which may be used to close the funding gap for projects that fall short of their fundraising targets on the platform.

"All funds raised will flow to projects," she emphasised.

The formal announcement of the JSIX launch will be made at the JSE's annual capital markets conference set for January 22-24.