BISX looks to ‘innovative’ growth strategies
Guardian Business Editor
Published: Sep 27, 2013
A small investor base of less than ten thousand means that the Bahamas International Securities Exchange (BISX) must look to “innovative” ways to encourage growth and liquidity in the market, its chief executive officer has argued, as he pushes to establish a market for short-term and small-scale finance for Bahamian companies.
Keith Davies, CEO of BISX, said that based on analyses by BISX, there may be as few as 3,000 to 8,000 individuals who actively trade on the exchange. Many “monied” individuals who have the funds that would make them eligible to become active participants in the securities exchange are fearful of doing so out of a lack of investor education, he suggested.
Addressing the Chartered Financial Analyst (CFA) Society luncheon yesterday, Davies noted that with 165,000 people in the Bahamian workforce in 2012, with a mean wage of just under $20,000, it would not be realistic that these individuals, who would be spending most of their income on basic needs, would be active investors.
“So that brings us to about 82,000. However, removing another 25 percent probably would be prudent to get us to a level where after consumption, investing is possible. So that leaves us with an eligible investing public of around 40,000 people.
“Unfortunately this significantly overstates the active investors in our market. We did a survey of our local brokers and looked at brokerage accounts and the number of active accounts. You’re looking at between 3,000 to 4,000. Even assuming this number is doubled to account for people who trade and don’t have an account you can see that our market is challenged with finding active investors,” he said.
Noting that two main criticisms of the market have been its lack of liquidity and small number of new listings, Davies said that he believes greater investor education could address the first challenge by bringing more into the market.
However, he suggested the issue of available securities is less easily remedied, given that there are only so many companies of the sort of size and capability to enter into a public offering.
For this reason, Davies said that the exchange needs to look at “diversification” and suggested that it may provide support for his interest in seeing a commercial paper market established.
“We need to think innovatively on where future growth will come from,” he said, adding that the active involvement of many stakeholders would be needed to bring such a project to fruition.
Such an initiative would target already-BISX listed entities who may need to access short term financing. The market would involve securities with maturities ranging from one month to two years, he proposed.
The focus on companies which are already listed on the exchange would take into account the fact that the Bahamas does not have a credit rating agency, and as such there would be a need to protect investors by focusing on companies which already have established records and auditing processes.
An emphasis could be placed on creating provisions for these companies to engage in issuances on the exchange on a “rolling basis” based on already filed information.
Another area of growth for the exchange could be the creation of a “junior listing” to take into account the fact that 95 percent of companies in the Bahamas are small businesses.
“If we are running out of large companies to list, we could allow smaller companies ...to get the financing they need to grow into larger companies,” he said.
Davies proposed that such an initiative could involve “relaxed” listing requirements that allow the companies the “time and space to get into the rules and grow.”
He recognized that such an endeavour would require “a lot of attention” since it would involve more “unsophisticated” entities that may not keep the kinds of records that larger companies do.
Pressed as to why BISX would focus on these areas before moving to ensure that the $3 billion in government debt outstanding is listed on the exchange, Davies said that whether or not this occurs is “up to the government.”