Equity transfers across stock markets a multimillion-dollar business

Published: Friday July 4, 2008

The movement of stock units across regional stock markets has emerged into a multimillion dollar activity, with Jamaica, based on the volume of reported transactions, emerging as the preferred market for Caribbean investors to redistribute their equity holdings.

Referred to as 'inter-securities depository movement', the owners of a cross-listed stock have the option of transferring their shares from their home market to the depository of another exchange to take advantage of market opportunities.

In 2007, over 16 million shares valued at more than $833 million were transferred to the Jamaica Central Securities Depository (JCSD) as follows:

15,737,809 units from Trinidad transferred at a value of $783.63 million; and

659,082 units from Barbados with a value of $50.05 million.

On the flip side, Jamaican investors transferred 14.4 million shares valued at $408 million to Trinidad: and 60,201 units valued at $4.6 million to Barbados.

Supreme Ventures Limited, now in the process of cross-listing its stock in Trinidad, has invited shareholders to consider transferring their shares to the Trinidad depository.

The cost is a combined US$28.35 per transaction on both sides of the market.

The Jamaica Stock Exchange says it expects such transfers to decline once the Caribbean Exchange Network (CXN) is in place, but for now, the business is expanding.

"The performance of inter-securities movement as at May 2008 is almost the same as that of the 12 months for 2007," said Marlene Street-Forrest, general manager at the JSE, parent company to the JCSD.

There are 10 cross-listed stocks on the stock markets of Jamaica, Trinidad and Barbados: Five are Jamaican companies listed in Trinidad, three Trinidad companies listed in Jamaica and two Barbadian companies cross-listed in Jamaica.

Market more active

The market has become much more active in recent times," said Street-Forrest. But with the implementation of phase two of the CXN this type of opportunity will diminish, she added.

"An investor will transfer if there is something to gain, that is, if they feel that the stock will be traded higher," said the JSE general manager.

"Inter-CSD movement is taking opportunity of the fact that the markets are not connected, giving some price differentials, so an arbitrage opportunity exists."

The CXN is an electronic trading platform that, once operational, will create a single regional stock market of about 120 listed securities.

The network was expected online by last October, but regulators have not completed their review of the proposed CXN trading rules and operational framework, derailing the timetable.

Ability to negotiate

In its absence, the market in the meantime, inter-CSD movement continues giving investors the ability to negotiate the market in terms of the best place to buy or sell their stocks.

Supreme Ventures in a letter to shareholders June 17 advising of the plans to list on the TTSE, said existing shareholders could transfer their holdings to Trinidad at a cost of US$25 per transaction payable to the JCSD, and another US$3.35 to lodge the units at the TTCD.

"Overall, it is valuable to transfer because of possible better pricing and liquidity," said Mark Croskery, president and chief executive officer of Stocks & Securities Ltd.

"The determination should be pricing," he said, and whether the gain is greater to the investor after transactional costs and exchange rate conversion.

Added Steven Gooden, vice-president and general manager Pan Caribbean Asset Management Limited: "While this type of activity improves liquidity and facilitates better pricing, given the arbitrage opportunity with the price differential, it may not be worth the hassle to move the stock as the price differential don't normally last for long."

According to Street-Forrest, this type of activity though is mostly done by the more sophisticated investors, with small investors tending to buy and hold.


Source:
Sabrina Gordon
Jamaica Gleaner
http://www.jamaica-gleaner.com/gleaner/20080704/business/business4.html
sabrina.gordon@gleanerjm.com