Changes coming for capital market, Stock Exchange

The Trinidad and Tobago banking system stands to suffer from the lack of development of the local capital market, which is currently fragmented, in terms of the number of firms and investors and which provides a limited range of securities. According to Central Bank Governor, Ewart Williams, the bank was currently undertaking several steps to enhance the development of the capital market, including the restructuring of the Government securities market and the introduction of an automated trading system on the Stock Exchange. Williams, who was speaking at the UWI Institute of Business Ideas Forum at the Hilton Trinidad yesterday, explained that although successive governments had taken steps to reform the financial sector and develop the local capital market, these reforms were not enough to produce a capital market which contributed significantly to economic diversification. This, he said, was highly critical for sustained economic growth.

“The lack of development of our capital market,” he maintained, increases the vulnerability of our banking system, which is now the predominant source of financing in our economy.” Williams explained that various sectors of the capital market have evolved at varying rates, with some advancing faster than others. The least amount of progress, he said, had been made in the equity segment of the market. “Here,” he said, “while market capitalisation has increased sharply and the market has registered a rate of return exceeding that of mature markets, the institutional characteristics of the market, as well as the trading patterns, have changed little over the last two decades.” He attributed this lack of advancement to a series of factors which included a bias in the fiscal system towards debt as opposed to equity financing, the high cost of equity financing and a lack of confidence in the mechanism of share price determination in the Stock Exchange.

The bank, therefore, was aimed at addressing these issues through the improvement of the local debt market and was currently working alongside the Ministry of Finance towards the development of a structured, efficient and liquid market in Government securities. He explained that this was to be achieved through replacing the current underwriting mechanism by a market auction system which would involve an expanded list of market participants who were prepared to make a secondary market in Government securities.

Additionally, he continued, the bank had undertaken steps to enhance the regulator framework governing the capital market, targeting existing legislation for amendment. The new legislation, which is expected to be presented to Parliament before the year-end, will mandate that listed companies move to quarterly reporting instead of semi-annual reporting. Furthermore, it will improve corporate governance by insisting that all listed companies appoint an audit committee dominated by independent directors in addition to increasing taxes on off-the-floor transactions and placing more power in the hands of the Securities and Exchange Commission (SEC).