May 2011 Financial News

Change in tax policy could light up bond trading market, says dealers

May 06, 2011

The removal of transfer tax and stamp duty on the trading and issuing of securities will bring about a more robust and competitive capital market, securities dealers say.

Finance Minister Audley Shaw, who expects to earn J$50 million of revenue from the move this fiscal year, said the policy change would cover listed and private companies.

Shaw said it would facilitate the issuing and trading of registered corporate bonds.

The lifting of the taxes takes effect May 16.

"It's an excellent move which will bring more liquidity to the bond and commercial paper market," said Keith Duncan, chief executive officer of Jamaica Money Market Brokers.

"It will open up the capital market and provides an attractive option for businesses to go to the capital market to raise funds, thus make the market more competitive," he said.

No commercial paper or bonds currently trade on the stock market, only ordinary and preference equities.

Dealers have long held that the commercial-paper market could grow with the right tax policy incentive and an easing of what they have called onerous disclosure requirements.

The issue was last raised in January at the annual JSE Capital Markets conference in Kingston, where investment bankers asserted that conditions were ripe for the revival of the bond market.

Prime Minister Bruce Golding said at the conference that he had instructed financial regulators to look for new ways, particularly toward commercial paper, in which the capital market could be mobilised.

The removal of the taxes has been welcomed as the first step.

"It means that corporate debt, for example, will become more liquid. Hitherto, corporate paper was a 'held to maturity' asset because it would be too costly to trade," said Dr Adrian Stokes, vice-president, strategic planning, projects and product development at Scotia Investments Jamaica Limited.

"With the taxes removed, investors can buy corporate paper with the confidence that they can sell without incurring large costs. In other words, an active secondary market will develop," he said.

Prior to Minister Shaw's announcement, stamp duty on a bond, according to the Stamp Office, was calculated based on how the instrument was constructed.

If, for example, a bond is to be used as a primary security it will attract a charge of J$3.75 per J$200 of value; or where it is to be transferred from one individual to another, a charge of J$30 per J$1,000 of value.

Charles Ross says a more robust commercial-paper market will force banks to become more competitive.

"Individuals can now shop around more aggressively to find alternatives, look to borrow at current market rates, and incur less cost to switch or refinance to a cheaper institution, which would now be forced to give up the business or become more competitive," said Ross, the managing director of Sterling Asset Management.

"It will help interest rates come down more quickly on the lending side," he said.


Source:
Sabrina Gordon, Business Reporter
sabrina.gordon@gleanerjm.com
Jamaica Gleaner
Friday May 6, 2011

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