Bleeding stock exchange vital to economy, says Smith
By LINDSAY THOMPSON
Guardian Business Editor
lindsay@nasguard.com
Despite a $2.3 million dollar loss over the past two years, and a government "life support" monthly injection of $50,000, Minister of State for Finance, Senator James Smith remains confident about the survival of the Bahamas International Securities Exchange.
Although financial experts question the viability of the unit as presently structured, the government is "looking at a sustainable capital market which we can trade shares. We don't want any slippage in our market," Senator Smith told The Guardian on Wednesday.
The government is of the view that development of domestic capital markets is a vital component of the country's broad economic development effort, he said.
Senator Smith maintained confidence in the ad hoc special committee of financial experts he appointed in December, to quantify what public-sector support would be indispensable to the future viability of the stock exchange.
The committee, headed by Central Bank Governor Julian Francis, has by month's end to submit its report to Senator Smith.
In its last two fiscal years ending June 30, 2002, BISX has lost as much as $2.3 million. Over the last six months, a few of BISX's 45 shareholders invested $125,000, but with little expectation of repayment in the foreseeable future. This forced the Central Bank to provide a life-blood injection of $50,000 per month.
There are about 18 companies on the exchange, with a capital of $1.4 billion.
The exchange is a 100-per-cent private-sector entity, which was launched at the beginning of 2000 with some $5 million of private capital funding.
Prior to October, 2002, the only public-sector financial support provided to BISX was a credit of $213,250, in December, 1998, by the Central Bank of The Bahamas to finance the development of computer software applications, and a Government grant of $72,500 the same year for the same purpose.
According to financial experts, BISX has been struggling for some time and it appears the board is no closer to developing a plan which will stabilise the company and put it on a growth part.
"BISX is too important a leg in our financial services industry for it to fail," experts said.
They also called on the board of BISX to take full responsibility for the lack of direction and the poor performance, to date.
"The board knew that it was burning cash at a significant rate, hence a plan should have been implemented long before now and not waiting on the mercy of the Government," the experts said.
One of the fundamental changes needed at BISX is one of transparency and accountability.
"We submit that the time has come for BISX board members to not be senior management of listed companies," said the experts. "It amazes us how self-righteous people can be and how they would use their position for their selfish gain. This is one of the principal reasons for the failure of BISX."
In its newsletter, Fidelity Forum, released Tuesday, Fidelity Group of Companies also pointed to financial loss and incompetence.
"One thing is clear, the committee's task is not to save BISX (or its wealthy shareholders), but rather to save a system of trading securities, an essential element for an active capital market," Fidelity said.
It further noted that a continuation of the BISX corporate entity, presently the only exchange licensed by the Securities Commission, may or not may prove to be the chosen vehicle for assuring that objective.
Whatever solution the committee ultimately puts forward, "its creation emphasises that the Government is committed to creating a viable capital market, as necessary both for our domestic economy and our reputation as an international financial center," Fidelity said.
Fidelity also recommended:
* A change in the way bonds and treasury bills issued are offered to the public, so that they would initially be sold to broker/dealers for onward distribution to their customers, and then traded on the exchange.
* Adopt a "Quote Driven" trading system, similar to that provided by a few of the broker/dealers prior to the inception of BISX.
* Assuring that when public companies (BaTelCo and others) are privatised, a large portion of their shares or bonds will be distributed through broker/dealers to the public and listed for trading on the exchange.
* Relaxation of exchange control to permit Bahamians to buy high-grade foreign securities through the mechanism of BDRs (Bahamian Depository Receipts) that could be traded on the exchange.
* Initiate an aggressive campaign at the ministerial level, to visit the U.S. Securities & Exchange Commission, the New York Stock Exchange, the London Stock Exchange, and similar bodies in Canada and elsewhere to introduce local exchange and set up the necessary arrangements for trading foreign securities with international counter-parts, which has always been a key objective of BISX but has never been realised.
Posted Thursday March 20, 2003
