Oct 2009 Financial News

Caribbean Exchange Network explained

Oct 05, 2009

THE Caribbean Exchange Network (CXN) - a co-ordinated electronic trading platform between the stock exchanges of Jamaica, Trinidad & Tobago and Barbados - is expected to be fully implemented and functional by the end of 2009.

In response to questions posted by a reader on the Jamaica Observer website www.jamaicaobserver.com, Jamaica Stock Exchange (JSE) general manager, Marlene Street-Forrest sheds some light on the CXN.

Q: If an individual has an account with a broker in Jamaican and wants to buy shares of a company in Trinidad & Tobago (T&T) or Barbados, how will it be executed under the CXN?

A: If an individual has an account with a broker in Jamaica and wants to buy shares of a company in T&T or Barbados, he will contact his broker in Jamaica and make this request. His broker in Jamaica will be licensed to trade in both T&T and Barbados, therefore he is able to access TTSE and BSE (as would any other broker resident in these two jurisdictions) trading platforms. The broker will put in the trade on behalf of the client in the same manner as if he were a trader in Trinidad and Barbados. The order is cued as with all the other orders from Trinidad and Barbados and settled in the usual T+3 trading and settlement cycle (three days after trading). The client has an account in the CSD in Trinidad or Barbados and wherever the Company is domiciled.

Q: Will the stock be priced in Jamaican dollars or in the other currency?

A: Transactions are conducted and settled in the currency of the Exchange on which the trade was executed. Trades are settled T+3. The broker will inform the client of the settlement bank's stated exchange rate at the beginning of the trading day and also the foreign exchange risk posed by T+3 settlement. Client can avoid this risk by making payment on trade date.

Q: In light of varying exchange rates and spreads, how will transactions be settled across exchanges? For example, would a Jamaican account holder purchasing shares located in the Trinidadian Central Depository have to buy US dollars then use US dollars to buy TT$, or buy TT$ using money orders? And will the investor have to fully absorb the spread on FX?

A: A settlement bank has been chosen for the purpose of dealing with issues of foreign exchange procurement and settlement of all CXN transactions between the various exchanges. The member dealers will fund their accounts at the settlement bank, each day in their local currency based on their net position, the settlement bank will make the necessary arrangement to acquire these funds and remit to the respective depositories which will in turn credit the account of the brokers who must receive payment.

Q: How will the broker fees be calculated, and where will the shares be held?
A: The broker fee is calculated based on the agreement between the client and his local broker who conducting the transaction on his behalf. Nothing has changed when compared to a local trade. In order to trade a broker must first connect to his Exchange and this gives him access to the other participating Exchanges and Depositories. He is then able to seamlessly open accounts in the other depositories on behalf of his client. The shares are held in the clients account in the CSD in which the security is domiciled.

Q: Will the circuit breaker rule be implemented?

A: All markets will continue to maintain the operational and regulatory rules by which they are currently governed. Therefore the circuit breaker rule in Jamaica and in any other jurisdiction will continue.

Q: Even while the development of the CXN is intended, in part, to attract foreign pension funds and investors in general, most companies listed on the JSE are not liquid enough to support large volumes of trading. Will listed firms be asked to supply more shares for trading?

A: The CXN is intended to provide investors with a larger pool of securities in which to invest within the region and allow for a more efficient way of acquiring these securities than currently obtains. It is also intended to attract large foreign pension funds which have said that at present they cannot through a transaction say with a Jamaica Broker purchased the volume required for a block of cash to invest. The CXN will now be a step in the right direction in respect to correcting this. While we are aware that liquidity issues we are not at this time considering an increase in the required float.

To comment on this and other articles visit: www.jamaicaobserver.com


Source:
Jamaica Observer
Sunday, October 04, 2009

http://www.jamaicaobserver.com/magazines/Business/html/20091003T220000-0500_160979_OBS_CARIBBEAN_EXCHANGE_NETWORK_EXPLAINED_.asp