Published: Friday October 31, 2008
Marlene Street-Forrest, general manager of the Jamaica Stock Exchange (JSE), has been selected by Senator Don Wehby to head a steering committee tasked to implement a junior stock market, the Finance Ministry said Thursday.
The junior exchange, to be managed by the JSE, will open up to small and medium companies the opportunity to raise capital on the equities market through public offerings.
The market, Wehby has said, offers a new opportunity for SMEs to develop. Such companies, which are usually owner-operated, have long found it difficult to access debt financing for their companies, which is often scarce and expensive.
Street-Forrest said in a late September interview that at least 10 companies were expected to list on the junior exchange at start-up.
The JSE itself has 39 ordinary stocks on its big board, and 18 preference stocks.
Wehby, minister without portfolio in the Ministry of Finance, expects that the junior exchange will become functional within five months, by March 2009. Thecommittee will have its first meeting next Tuesday.
The steering committee he has named comprises nine members who straddle the government services, the accounting, securities and legal fields (see list).
Cabinet approved the junior exchange on September 29, signalling that the regulatory hurdles had been cleared after years of planning.
"We believe that the Government has now put their money where their mouth is in encouraging the growth of small and medium size businesses," said Marlene Street-Forrest in an interview after the Cabinet decision was announced.
"Many companies have shown an interest ... and we expect up to 10 companies at start-up," she said.
The junior exchange is for companies with a capital base of between $50 million and $500 million.
To list, the company must identify a 'mentor', which is not necessarily a JSE listed company but a corporate broker with the necessary experience to guide a younger or smaller operation.
Fit and proper
The mentor must be approved by the Financial Services Commission (FSC) under the 'fit and proper' criteria established with the Securities Act.
Initially, the plan was for the companies to have 'sponsors' but it was thrown out.
"A 'sponsor' would have included a FSC approved investment professional, but the sponsor regime typically involves formal confirmation of the junior market company's compliance to the JSE," according to the JSE junior market working document.
"It is unlikely that any FSC approved investment house in Jamaica would be willing to take the liability risk arising from acting as a formal sponsor. So the exchange proposes to impose a lesser 'mentoring' requirement instead."
The junior listed companies can look for mentors within the 'SME development' sector, such as the Private Sector Development Programme jointly sponsored by the Government of Jamaica and the European Union or its Corporate Finance Brokers Unit, which helps small companies tap financing.
The junior market is expected to be guided by a similar set of rules as the JSE companies, but it is also expected that some procedures will be simplified, such as the filing of a prospectus and tax exemptions.
Among the tax concessions are: a full income tax holiday for half of the incentive period, which is up to 10 years from the date of listing; and a 50 per cent income tax holiday for the remaining period.
The junior company will also be given an exemption from tax on dividends, transfer tax and stamp duty on transfer of shares on the exchange.
The company may have no less than 25 minority shareholders. And minority partners may hold no less than 20 per cent of the company's issued share capital.
Its prospectus for a share issue may, unlike JSE companies, take the form of a submission to the exchange or an upload to the JSE's website.
But like the main exchange, annual and quarterly presentation of financial reports are required.
Wehby sees the junior exchange as a way to broaden the stock market while offering capital to 'stimulate the development' of small companies.
The junior market company will be periodically assessed as to whether it can be graduated to the main JSE board, a movement that will be triggered by its market capitalisation.