Sun | Sep 22, 2019

JSE strikes tech deal with Nasdaq - Opens new opportunity for short-selling, margin trades

Published:Wednesday | April 3, 2019 | 12:10 AMSteven Jackson/ - Senior Business Reporter
Marlene Street Forrest, managing director of the Jamaica Stock Exchange.
Marlene Street Forrest, managing director of the Jamaica Stock Exchange.

The Jamaica Stock Exchange (JSE) has struck a deal with the tech-heavy Nasdaq exchange in the United States that will allow local brokers to short-sell or profit from falling stock prices, while also trading international stocks.

On Monday, the two exchanges announced the signing of a seven-year agreement for Nasdaq to deliver matching engine and market surveillance technology, referred to as SMARTS, to the JSE. The terms of the transaction were not disclosed.

JSE Group Managing Director Marlene Street Forrest said there will be no noticeable changes for investors when buying or selling shares on the JSE, but brokers will experience greater ease and flexibility in trading activity when using the new platform.

Nasdaq, the home of 4,000 listings led by globally known technology stocks, such as Google and Apple, has a market value that hovers at about US$15 trillion. That translates to $1.8 quadrillion, or $1,800 trillion in Jamaican currency.

Jamaica’s market is valued at a fraction of that at nearly $1.6 trillion, or less than US$13 billion. JSE has over 80 company listings.

“With the stability we expect from the electronic trading platform, we expect we will now be equipped to concentrate on launching short-selling and margin trading. There are also other markets that we will be able to create with the support of regulations, such as REITs,” said Street Forrest.

“The platform will also allow for the trading of Government of Jamaica securities,” she added.

The JSE has wanted to formally introduce short-selling for a number of years on select large cap stocks, and formally recommitted to getting it done last year. It’s understood from market sources that Cable & Wireless Jamaica was one of the stocks the JSE wanted to initially allow investors to short. CWJ, however, was taken private and delisted last year.

An investor shorting a stock essentially places a bet with their broker on the expectation that the price of the stock will decline. The investor would enter into a contract with their broker to borrow a certain number of shares in that stock and sell back that block of shares at a lower price. The investor profits from the difference in the fall in price, minus the fees and commission.

Street Forrest said the SMARTS technology allows for better monitoring, surveillance and analysis of trades across the exchange, reporting and analytics, and will add confidence to the growing market.

She later confirmed that the Nasdaq system would replace the platform currently provided by the exchange’s South African vendor. Full migration to the new platform is expected by year end, and the new products should come on stream starting in 2020, she added.

Nasdaq in a statement on the deal said its market technology powers more than 250 of the world’s market infrastructure organisations and market participants, including broker-dealers, exchanges, clearing houses, central securities depositories and regulators, in over 50 nations.

“Any country’s stock can be traded on this platform because it is designed for multi-currency trading. The issue therefore, of trading US stocks or stocks listed on any other stock exchange or in any other market will require a stock exchange strategic initiative, interest of companies to do so and an enabling regulatory framework. The technology will support it,” Street Forrest said.

The JSE was twice assessed by Bloomberg as the world’s top-performing exchange, in 2015 and 2018, due in part to the new listings of fast-growing medium-sized companies.

The JSE stock, which is also listed on the Kingston exchange, is currently the top-performing equity, having gained 65 per cent year to date, ending March.

“By leveraging our trading and surveillance solutions, JSE will be operating on the world’s most widely used trading technology for exchanges in the world. This is a key indicator of their dedication to build Jamaica’s capital market ecosystem into an important hub for finance and commerce,” said Carlos Patino, head of Latin America and the Caribbean, Market Technology at Nasdaq, in the joint release.

steven.jackson@gleanerjm.com