by Richard Coulson

“SAVE  WITH FINCO—Finco pays 7½% on savings deposits; 9½% on time deposits.”

Unbelievable?  Not in 1980, when the above ad was published. A retiree  with some savings could survive on those interest rates. No longer—today the figures would be more like a miserly 1% and 2½%, before inflation’s gnawing effects.

Now, to protect our money  we must rely on our capital market, carefully choosing between a variety of ordinary and preference shares  and fixed-rate bonds. But we don’t  get much help in this exercise, which is still virtually unknown  to  the ordinary Bahamian, even though one of our Government’s objectives is to spread the wealth by giving more Bahamians an equity stake in the business economy.

It is a truism in the securities business that shares, unlike toothpaste, are not bought, they are sold.

The  truism means that shares are not bought from sellers passively waiting to take an order.
Instead, they are sold by aggressive marketing campaigns pro-actively reaching out to investors and giving them reasons to buy.

Stock exchanges can play a major role in these campaigns. The New York Stock Exchange is an incomparable public relations machine for the securities industry. Through its vast output  of daily electronic and print information and high TV visibility, the NYSE is the main mechanism for getting average Americans interested in becoming stockholders.

Unfortunately our own Bahamas International Securities Exchange (BISX) has no similar  impact among Bahamians. Since its founding 15 years ago, it has developed the platform and all the technical systems for efficient trading of securities, but it remains deplorably weak in its other main task—actively promoting our capital market and encouraging it to grow. There are still only 17 companies listed, the most recent  introduced over four years ago. On a typical  day, two companies may trade, exceptionally five, and zero days are not rare. For inactive companies, the published “last trade” prices can be weeks stale and out of date.

In both  content and  format of  information provided to the investment community, BISX  publicity is primitive compared to the other main Caribbean exchanges in Jamaica (JSE), Barbados (BSE), and Trinidad-Tobago (TTSE. 0n opening the BISX home-page, one finds a stark black-and- white presentation which leads to similar  pages of statistics and a few bits of text, all in static format as if photocopied from printed documents. This stodgy design was launched in 2002 and  never updated. BISX shows no  awareness  of how the Internet, websites, and ever-changing digital technology have revolutionized market communication  essential for any modern enterprise.

By contrast, the vivid opening page of the JSE website uses  photos and full-color graphics, with numbers actively scrolling across the top giving recent prices of traded stocks, and below that are shown price movements over time in eye-catching chart form. One can find in a moment all the trading activity on the preceding session, and by clicking the name of any listed company (about  50 of them)  one quickly finds historical price data, annual and interim reports, and names and holdings of the ten largest shareholders (disclosure which BISX could easily obtain but ignores). The JSE even publishes financial statements of the actual company that manages the exchange, with details about listing and trading fees and operating expenses, highly relevant  information.

Since  based in smaller economies, BSE and TTSE are not as elaborate as JSE, but all three share  common features not found in BISX. All three show  colorful pages of graphic design, often incorporating  ads, a good source of income. All three have developed two-tier markets, with large, proven companies listed on a senior market, and smaller, newer, more speculative concerns listed in a junior market. For several years BISX has been talking about establishing a similar “small enterprise” tier, but has never launched the project. In Barbados one company testified on how useful it  found this facility, allowing it to be free of slow-moving  ultra–conservative bank finance. Surely the same potential exists in The Bahamas.

All three exchanges publish up-to-date news of corporate events  about their listed companies -  dividend declarations, annual and interim earnings reports, changes in directors, share splits, etc. – as well as frequent announcements  about Exchange activities such as conferences  they sponsor. I was impressed to see on the TTSE opening page  a bold offering of “Free Public Education Seminars”, and BSE publishes a comprehensive  semi-annual report about all trading activities and related exchange events. By contrast,  BISX continues to emblazon a single “press release” about a visit to  the United Arab Emirates in February 2014 (yes, 2014),  and the “Industry News” heading has no entries.

The recent 3-for-1 Cable Bahamas share split, a significant market even, was not mentioned. As BISX shows  no charts tracking  share prices, an investor cannot see whether he is up or down for the year. The only gesture BISX has  made towards a full accounting of its history and present life Is a cursory document published  in August titled “State of The BISX Market.” It provides a brief narrative of major developments from the initial carpet capitalization of $820 million in 2000 to $3.653 billion at end 2014, but is a far cry from the information provided by the other three Caribbean exchanges. Publicity via TV is minimal, with a brief daily summary found on ZNS “Bamamas Tonight” (provided by Fidelity Bank, not BISX), and  to my knowledge  none  of our popular radio programs carries financial news.

It is hardly surprising that with these deficiencies the Bahamian public takes so little interest in our stock market. I do not in any way  fault the hard-working BISX  staff, led by Executive Director Keith Davies, for this state of affairs. They have struggled mightily to overcome tight budgets, limited resources,  and  administrative  obstacles, having succeeded  in listing many specialized  mutual funds as well as, at last, convincing the Ministry of  Finance to list Government debt. The further improvements  needed to excel over JSE, BSE and TTSE will all need money and board-level commitment.  On dialing BISX, one  gets a recorded message that it is “the first stock exchange of the twenty-first century.” This  will remain a sardonic joke unless a complete modernization is undertaken.

Perhaps the new Chairman, former off-shore banker Andrew Strachan, will be more energetic than his predecessor in leading the change.

At present, BISX reports that it is owned by some 45 banks and financial firms, un-named as are  the members of the board of directors. This information should be disclosed  immediately. It is unthinkable that BISX, responsible to the investing public, continue to be run as a secretive private club.  The first step to regeneration will be to hire experts in financial marketing and web design. If  BISX is not to  become irrelevant and outmoded, the necessary funds must be raised, probably by a further capital subscription from shareholders, including Government which already holds a  stake.

Public skepticism about  any growth in our capital markets focuses on lack of liquidity—the stagnant  condition that impedes buying  selling of BISX-listed shares. The only long-term solution is:  get more companies listed. Improving  BISX is only one factor in this exercise . The five licensed BISX broker-dealers and our billion-dollar pension funds should  become much more imaginative in promoting equity investment, with active support from our Securities Commission and Ministry of Finance. A few years ago Cabinet approved US  food giant Sysco acquiring Bahamas  Food Services on condition  that it then launch a local public offering of BFS shares,  potentially a  major stimulus  to our capital market. When  can we expect  Government to enforce this commitment?

The  Caribbean Community Secretariat recently named a total of 69 companies listed for trading on the JSE, BSE or TTSE, some of which are cross listed on more than one exchange. Adding the 17 companies listed on BISX gives  a total of 86 companies in the Caribbean zone that have some degree of public ownership and are subject to securities regulation in their home countries.

If all these companies were traded  on a single exchange, that would certainly enhance  liquidity since investors would have a wider variety of alternatives from which to chose. Unfortunately, such centralization is currently impossible due to the variety of legal systems and currency exchange rates. Even in the single currency Eurozone, there has been no  consolidation of  national exchanges into  a single entity.

However, our Securities Commission (the regulator of BISX) often meets with its opposite numbers from other regional nations. This year, Bahamas holds the chair of the Caribbean Group of Securities Regulators. They  could jointly set “best practice” standards that would extend uniform guidelines across all securities exchanges, so that investors in any country could find equivalent information about listed companies in any other country. This would encourage cross-listing of qualified companies, just as a few foreign companies have offered BDRs to Bahamian investors. Likely initial candidates for cross-listing could include the Jamaican conglomerate Grace Kennedy, selling its products throughout the region, and our own Cable Bahamas, operating both here and in Florida. Gradually a wider pool of investors would be created, trading in a  wider pool of companies, a sure way to increase liquidity.

Also, BISX and our Securities Commission could persuade  the Ministry of Finance to use fiscal policy.  The  JSE, BSE and TTSE each negotiated income tax exemptions for small or medium sized companies going public on their junior-tier markets. We do not have income tax here, but we have  the equivalent:  business license fees  An exemption from these fees would certainly provide  a strong incentive for small businesses  to raise capital via initial public offerings.  A partial exemption or deferral could also encourage our large, privately own businesses to spread their shares more widely through  shareholder offerings  at  attractive prices. These exemptions would show  Government recognition that a dynamic, broadly based  capital market is essential for a dynamic economy.

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Mr. Coulson has had a long career in law, investment banking and private banking in New York, London, and Nassau, and now serves as director of several financial concerns and as a corporate financial consultant. He has recently released his autobiography, A Corkscrew Life: Adventures of a Travelling Financier.