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FSC sets $1m minimum for retail repo purchases

Published:Wednesday | November 26, 2014 | 12:00 AM

The Financial Services Commission (FSC) will phase in new minimum transaction values for retail repos over the next year - $1 million for local-currency purchases and US$10,000 for foreign-currency repos.

The new limits will be fully phased in by December 31, 2015.

The aim is to create room for growth for other collective investment schemes. CIS activity is expected to diversify investments away from the repo market, which at last estimate by FSC was valued at $419 billion at June 2014 or six per cent more than the previous year. Repos are a liability for investment houses.

"The FSC has indicated that investments below that size [$1 million and U$$10,000] should be managed under collective investment schemes and not under repurchase agreements," Julian Mair, president of the Jamaica Securities Dealers Association (JSDA), said Tuesday.

Local CIS include unit trusts and mutual funds. New funds were given 12 months to register dating from the start of this year, while old ones are expected to re-register.

Under the phased programme, the floor on retail repos for JMD transactions will move from $100,000 at October 1, 2014, to $500,000 by April 1, 2015, and J$750,000 at October 2015. The $1 million limit takes effect in December.

The USD transaction limits for those same periods will rise from US$1,000 to US$5,000, then US$7,500 and then to US$10,000 at the end of 2015.

"The Financial Services Commission is proceeding to implement securities-sector reforms aimed at mitigating the risks to investors engaged in retail repurchase agreements (retail repos). One critical element of the reform is the establishment of a minimum transaction size for retail repos," the regulator said in its newly released quarterly newsletter, FSC Compass.

The FSC also said it would be introducing additional reporting requirements to "facilitate timely and accurate information gathering in order to determine the level of compliance with the established minimum transaction sizes".

CIS portfolios may include equities/stocks, fixed-income instruments/bonds, certificates of deposit, and real-estate investments.