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BCW Capital gets nod to issue receipts for 27 US stocks

Published:Thursday | November 19, 2015 | 12:00 AM

BCW Capital has been given the regulatory nod to issue Jamaica Depository Receipts (JDRs) for 27 stocks listed in the United States.

The local investment house plans to initiate public offerings for the JDRs next January with the goal of completing all issues by February.

Directors of the company said they chose the "best" blue-chip equities from the S&P 500, including tech stocks such as Facebook, Apple and Microsoft; retail stocks such as Amazon, Wal-mart, Target and Best Buy; major brands such as Coca-Cola; and financial giants such as Goldman Sachs and Bank of America.

The approval thus allows them to buy these stocks on behalf of investors; create receipts, or JDRs, which evidence ownership of these shares in the United States; and trade the JDRs on the JSE, much like how American Depository Receipts (ADRs) representing foreign companies, like Sweden's Volvo, are traded in the US.

Regulations set out by the Jamaica Stock Exchange (JSE) gives each local broker the opportunity to apply for 30 foreign companies. Another brokerage, NCB Capital Markets, has also received approvals to issue JDRs, JSE general manager Marlene Street Forrest confirmed on Thursday.

BCW appears to have taken the most aggressive position on JDRs so far. Charles Chambers sees the investment mechanism as somewhat of a game changer for the local securities industry.

"We think that the pool of equities available to Jamaica is not deep enough," said the BCW chief executive. "(JDRs) provides investors with access to the best companies in the United States, and around the world."

The depository receipts model also enables pension funds to access foreign equities without exceeding their cap on foreign assets. The retirement funds are currently not allowed to have more than five per cent of their investments in foreign assets. The JDRs are denominated in Jamaica dollars, highly liquid and locally traded.

Aubyn Hill of BCW figures that the depository receipts will also attract foreign investment, which will spill over into the local equities market.

"When that money comes from outside Jamaica and gets accustomed to trading on the JSE, those investors will begin to look at the local securities, which trade at much lower (price-to-earnings) multiples than securities in the US," the BCW director told the Financial Gleaner in a telephone interview on Wednesday.

Individual investors should be able to get in on the JDRs with a minimum investment of US$1,000. Brokers have the opportunity to issue as many receipts per share, explained Chambers. So for a stock like Amazon, which currently trades at around US$670 a share, 67 receipts could be issued at US$10 each. Shares are traded in 100 unit blocks on the JSE, which implies a minimum of US$1,000, using the Amazon example.

Prospectuses for JDRs for each of the 27 stocks will be issued prior to the public offerings which will begin in January.

For each IPO to be successful they have to attract a minimum amount of funds JSE rules set a floor of US$50,000 for each JDR. The proceeds from those issues would thereafter be used to purchase the US equities, which will be held by a global custodian, in BCW's case, Bank of America.

The Jamaica Central Securities Depository will have privilege to those accounts to ensure that the receipts that are traded on the JSE match the shares in the custodial account.

"Because you are working with the most liquid market in the world, these transactions are almost instantaneous," said Hill. "Stocks on the Jamaican market sometime takes weeks to sell."