SEC opens the market door

It was not pretty. Among the trangressions listed, Nurse said there was a "noticeable transfer of wealth" from existing share holders to executives of the company under the stock option plan and the perception that interlocking directors were taking advantage of the market.

"We have to pay attention to regulation and create an environment for reporting on the stock options and expensing them," he told business executives.

The SEC Chairman said such a move will make it much clearer to people as to what is happening.

Nurse also provided figures to show the "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 3 or more boards.

"Analysed from another perspective, 35 of the 231 directors of these 30 firms hold seats on at least two boards, and 10 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 and he questioned to what extent are people using "their connectedness to take advantage of the market."

He also took a swipe at recent deals that the main brokers considered to be nobody’s business but their own. Neither RBTT’s sale of chunk of its GHL shares (9 million) to GHL chairman Arthur Lok Jack nor Clico’s purchase of Republic shares were seen as "significant events."

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.

He also sounded the alarm bell over the fact that share prices have been increasing significantly faster than earnings. By 2004, share prices had increased from a zero index in 2001 to 1.6, while the earnings index has increased to approximately 0.5 and the index for earnings per share to approximately 0.3.

The performance among conglomerates, he said, was even more dramatic. The share price index increased to about 2.2, while that for earnings went to just over 1.2 and for earnings per share to less than 1.

Equity issues too formed a relatively minor part of securities issued in the market.

Of some TT$ 100 billion in new registered securities in the period 1997-2003, only TT$ 32 billion relate to equity issues.