Interview: Hadyn Gittens
What measures have been taken to raise the regulatory standards of capital markets?
HADYN GITTENS: A number of steps have been taken in the ongoing process of continually improving the standard of regulation. The TTSEC has maintained a long-standing relationship with the International Organisation of Securities Commissions (IOSCO), the governing body for securities regulators around the globe.
In addition to being guided by IOSCO principles, the TTSEC also benefits from close collaboration with the US Securities and Exchange Commission and the Canadian Securities Administrators. The legislative amendments contained in the Securities Act of 2012 and the further amendments made in 2014 were heavily influenced by IOSCO principles, as well as by legislative practices in other more developed jurisdictions. These regulatory adjustments markedly improved the framework that was previously in place under the Securities Act of 1995. For example, they created a channel for the TTSEC to regulate and support increased transaction volumes more effectively by defining and setting specific qualifying criteria for limited offer security issues.
Furthermore, the TTSEC is currently engaged in drafting by-laws that will govern activities within the collective investment scheme (CIS) market segment. This will go some way towards addressing certain inherent risks in the CIS market, while enhancing regulatory oversight of this very significant sector. We are also strengthening our micro- and macro-prudential reporting frameworks, as the TTSEC moves towards more risk-based supervision of registrants and the market.
How can small to medium-sized enterprises (SMEs) be encouraged to go public?
GITTENS: The country’s liquidity overhang has undoubtedly contributed to a lack of success in this area, particularly towards the development of a functional SME stock exchange. However, liquidity appears to be tightening at the moment, and this may change the state of play. It is still relatively easy and inexpensive for firms in T&T to raise financing through the traditional banking sector. For well-placed SMEs this presents a huge disincentive to raising funding through alternative means. Both large companies and SMEs tend to be family-owned entities with family-based succession arrangements in place. This, combined with readily available bank financing, make going public much less appealing than would otherwise be the case.
While the regulatory and administrative arrangements are in place for the Junior Stock Exchange (JSE), this instrument has not been thoroughly used and developed. That said, there has been increased interest among market players lately in accessing the JSE. This contrasts with Jamaica, where chronic monetary liquidity tightening helped in the early launch and success of a JSE. Ironically, T&T’s CIS sector is the most developed in the Caribbean, with mutual funds currently racking up an aggregate value of over TT$47bn ($7bn).
How can excess liquidity be channelled into the Trinbagonian economy?
GITTENS: The current situation of excess liquidity is not expected to continue forever, and macroeconomic indicators point to stiffening in this regard. Surplus liquidity had been buoyed by high hydrocarbons commodity prices and by moderate-to-low incremental investment in the local economy. This excess liquidity has then been parked in the form of idle local and foreign deposits and investments. The channelling of these investment flows towards productive, economically beneficial local projects has been a pending subject in T&T for years.
The problem is the dearth of new investment in the local economy outside of the energy sector. This has resulted in very few corporate bonds being issued. While fiscal deficit financing has brought the government to the market more frequently than over the past decade, the proceeds of these issues have largely gone towards the funding of current account deficits.
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