Stock broker says restriction must not fall below 20 percent

While CEO of Trinidad Cement Limited (TCL), Dr Rollin Bertrand, expressed strong views against the  20 percent restriction placed on State-owned companies to trade on the Stock Exchange, one local stock broker thinks otherwise. Managing Director of Bourse Securities Limited, Subhas Ramkhelawan, has expressed his support for the restriction but once it does not fall below 20 percent. His support for the 20 percent restriction, he said, was held in the context of firms being able to “equity account their holdings of another company.” A restriction less than 20 percent would not allow this, he said, leaving companies unable to represent on their books a share of the profits and the assets of those companies.

“Failing equity accounting,” he said, “the acquirers of those firms will not be able to properly reflect the value of the holdings or the earnings stream, because all they can do is list the dividends paid by that company as income. This is the reason for the 20 percent restriction.”The Securities and Exchange Commission (SEC) held a hearing on Monday to consider an amendment being proposed by the Stock Exchange to allow companies with a 20 percent or higher restriction on share holding to be listed. Dr Bertrand argued that state-owned companies listed on the TT Stock Exchange should receive the same treatment as other listed companies, being allowed to be traded on the exchange. He questioned Government’s treatment as a special shareholder, since it had constrained share holding companies and knocked the SEC, saying that the restriction was the result of the lack of a proper take over code. At the hearing it was also suggested that Sagicor’s attempt to list with a five percent restriction was the main reason behind the amendment. Ramkhelawan noted that a restriction of five percent would provide the company’s management with more control, taking paower away from the shareholders.

It would require a large number of shareholders collaborating to be able to effectively influence management decisions, he said. “The question is who will be influential shareholders if there is no one shareholder that can put together or acquire up to 20 percent,” he maintained. “Even though I support the 20 percent restriction, I would not support a limit lower than 20 percent.” Ramkhelawan agreed with Dr Bertrand’s criticism of the absence of an adequate take- over code, saying that such a code was necessary because there were presently no measures in place to work against the acquisition of a company. “There should be measures in place,” he asserted, “which will restrict the predator who, without those restrictions, would not be subject to any rules of engagement.” Ramkhelawan also called for the establishment of effective regulations and monitoring to enhance the effectiveness of the stock market.

He explained that where equity markets were concerned, the role of surveillance had been filled for some time by the TT Stock Exchange. However, the implementation of the Securities Industries Act resulted in this role being taken over by the SEC. He said tha while those at the SEC held strong credentials and qualifications, they still lacked the necessary depth of experience in the management of a securities market. He said, “I have often felt that we need to bring in someone to head the SEC over time; someone who has that depth of experience from a developed market that has seen some of these things happen.” “We need someone to bring some of these disciplines to bear on our market on the understanding that it is at a certain point of development reflective of the economy, as well as the level of efficiency in an emerging market.”

Managing Director of Caribbean Money Market Brokers (CMMB) Securities Limited, Robert Meyers, agreed that the local stock market still had a long way to go. Meyers took a dim view of  restrictions being placed on companies, saying that if an open market was the desired outcome, then restrictions would go against the grain of what such a market is supposed to achieve in equal opportunities for everyone to share in the wealth. “I believe that you must have an unfettered market with no restrictions,” he asserted. Meyers further noted that while regulations were beneficial in the long run, too many would hinder the growth of a “fledgling market” such as that of TT. “In my mind,” he maintained, “we have to let the market develop and let the regulations come in to bring order, rather than importing all these restrictions from abroad and imposing them before your market has even begun to develop.”