Market comes with Strings attached

Among their trangressions, Nurse said was a "noticeable transfer of wealth" from existing shareholders to executives of the company under the stock option plan and the perception that interlocking directors were taking advantage of the market.

On the issue of stock options, Nurse acknowledged that it had become a popular form of compensation. He told business executives at an Institute of Business (IOB) capital markets forum that while he did not have a problem with the compensation part of the plan, "we have to pay attention to regulation and create an environment for reporting on the stock options and expensing them."

Speaking under the theme, "Capital market development in Trinidad and Tobago and the role of regulation," the SEC Chairman said such a move will make it much clearer to people as to what is happening.

"I have been told by senior executives that if the SEC does not approve the stock options in time to allow the executives to benefit from, let me call it the arbitrage, then it would not be useful and they will have to stop giving stock options as compensation."

Their argument, Nurse said is that it will no longer be a motivation.

The SEC, Nurse said, has also been seeing a high degree of interlocking directorships among listed entities in the market. In a review of 30 companies listed on the first tier of the TTSE, 25 had at least one director who sits on the board of another listed company, inclusive of 16 companies with at least one director sitting on three or more boards.

"Analysed from another perspective, 35 of the 231 directors of these 30 firms hold seats on at least two boards, and ten hold seats on more than two boards," he said. "These 45 directors, representing 19% of the total number, control 71% of the value of assets and 88% of the market capitalisation of these companies."

He said while it was not the SEC’s role to say who should invest in the market, their concern was one of disclosure. He said while material decisions are being made, he questioned to what extent are people using their "connectedness to take advantage of the market."

In his address that covered a diverse range of issues, Nurse said some deals raised the prospect of insider trading. When a major shareholder was acquiring another five percent of another entity and moving from less than 50 percent to more than 50 percent, it was not considered "significant" nor did it require "disclosure" he said, referring to Clico’s increased shareholding in Republic.

On RBTT’s sale of chunk of its GHL shares (nine million) to GHL chairman Arthur Lok Jack, Nurse described this deal as "another entity disposing of a significant investment in another company but that is not a significant event."

He said the tendency to secrecy raised the prospect of illegal insider trading. "To simply say that the decision is not material is simply the wrong approach," he said of the RBTT deal.

Nurse said in the Trinidad and Tobago market, the inclination is to "treat every major decision as something requiring secrecy even after the decision has been made. The inclination is to "treat every major decision as something requiring secrecy even after the decision has been made," he said.

"In a market as small as this one and in which there is as high a degree of connectedness, concerns about the dealings of connected persons will always be of some importance, and the natural tendency is to immediately deem all such dealings as suspect, unfair or illegal," he said.

If the securities market is about encouraging potential investors to share the risks and returns of investing in the development of the business sector, "then the regulation of these markets is about ensuring that potential investors are fully informed about all material matters that influence those risks and returns," he said.