The Jamaica Stock Exchange (JSE) has launched a bond-trading platform, but so far has no prospects for listings. Instead, the exchange will be reaching out to stockbrokerages, which form its membership base, to drum up future business.
JSE General Manager Marlene Street-Forrest said the platform offers investors a secondary avenue to generate returns from bondholdings, especially now when interest rates on government securities have hit such low levels. Two debt restructurings have shaved coupon rates off GOJ bonds over the past three years.
The JSE Bond Market, launched on Wednesday, June 26, opens up a new area of the capital market for secondary trading of debt securities. The exchange has listed bonds before, but currently, only equities are traded on the JSE.
"For us, it is important to widen the investor pool," said Street-Forrest last Friday.
The exchange already produces a bond-performance report daily, but the indices are largely based on selected Jamaican and Caribbean debt securities traded globally (see Page C3 for composition of the indices and Page C10 for Friday's JSE bond report).
A bond is a security usually issued by companies or governments - or other legal entities - for the purpose of borrowing money from investors for a defined period.
It amounts to a loan from buyers of the bond to the bond issuer. In return, the issuer pays interest on the debt instruments at regular intervals, usually quarterly, and repays the principal at the maturity date.
The JSE platform provides new opportunities for fund seekers and investors alike, Street-Forrest says.
"Disclosure from companies allows for persons to be more confident about investing in the security. GOJ securities rates are down and persons are looking for new homes to put their funds," said the JSE head.
"This way, funds can be garnered for productivity, and more persons can become involved. The platform is an efficient platform which provides transparency and regulation of these bonds," she told Sunday Business.
Companies whose securities are listed on the stock exchange are required to disclose their financial performance and other information impacting their operations to the market.
The JSE Bond Market is designed to facilitate the trading of corporate bonds, Government of Jamaica securities, the securities of any other sovereign CARICOM nation, as well as pledges, depositary receipts and repurchase agreements, according to information at the launch event.
The JSE offers "a safe, efficient, and transparent mechanism for secondary-market trading in corporate bonds," said Street-Forrest. "Issuers of corporate bonds can raise capital on the primary market and list on the JSE. Equally, those corporate bonds that have already been floated privately can still be listed on the exchange," she said.
Citing the advantages of market-traded bonds, Street-Forrest said it allows for convertibility of the bonds into equity; creates greater transparency because of the required disclosures; and offers liquidity.
"Investors who want to sell now have the avenue to transfer or sell. It also allows for pricing of the bond. A bond which is done through private placement remains that way. Listing allows for capital appreciation potential and a mechanism for pricing," she said.
The JSE plans to market the new platform via its dealer network.
"Our strategy is a matter of sensitising the market to the fact that the stock exchange is here so you can secure funds on an initial basis and list. We intend to work with our member dealers who structure bonds, to promote the facility to the clients who come to them," Street-Forrest said.
Bond listings, she said, will have similar requirements as company stock.
As to the cost of listing, JSE Deputy General Manager Robin Levy, said at the launch that the fees would be attractive and that the exchange "will be working with the brokerage community to ensure that their fees in turn would be attractive to those who want to enter the market".
JSE will also adjust its usual trading fee from the current 0.2 per cent to 0.01 per cent for bonds.
The launch of the bond market without prospects for listing did not perturb Street-Forrest.
She advised Wednesday's launch that the now successful junior market also debuted without a listing back in 2009, and recalled an unflattering news headline in The Gleaner that declared: 'Junior Market Begins With No Stock To Trade'.
"I am saying now as I was quoted as saying then that by moving forward even without a listing, it would signal that a vehicle exists through which companies can raise financing," Street-Forrest said.
The Jamaica Stock Exchange has developed a number of indices to measure the performance of various regional fixed-income and equity markets. More specifically, the indices cover the following asset classes:
1. Jamaican Money Market Index. The index for this class tracks the price performance of the three- and six-month weighted average Treasury bill yield (WATBY) by modelling the composite returns of a portfolio consisting of all outstanding three and six-month WATBY securities.
2. Jamaican Global Sovereign Bonds Index. The index for this class tracks the price performance of all outstanding foreign-currency bonds issued by the sovereign.
3. Caribbean Investment Grade Index. The index for this class tracks the price performance of all outstanding foreign-denominated bonds issued by companies that have an investment-grade rating.
4. Caribbean Stock Index. The index for this class tracks the price performance of securities listed on the Jamaica, Trinidad & Tobago and Barbados stock exchanges as a composite value based on the returns of the individual index of each country.
- Source: JSE