Very few people like change. We sleep on the same side of the bed every night, drive the same way to work every day, eat the same foods every week, pay the same bills every month and make the same resolutions every year. But there comes a time when we must either accept and embrace or be overcome by change, it is the only constant. The change agent becomes the innovator and resistors become extinct.

Appetite for risk

The typical Jamaican, be it the illiterate vendor or high school drop out, is a rather savvy lot and university graduates struggle with the fact that invariably the less educated achieves more economically. A similar bias resides in the authorities understanding of investor behavior in the wider economy; the policy prescription rarely achieves the expected results and is blamed on mired factors like speculation, risk aversion, underground economy etc. And yet the answer is simple, people got to make a living and the more choice one has the less determined he or she needs be as alternatives beckon.

No sweat

In the early 1990s the government embarked on a high interest rate course to quell inflation. Predictably, investors rebalanced their risk- reward ratio away from capital/labour intensive production in favour of government paper and a whole generation of participants, accustomed to “eating bread without sweat” is now challenged by reduced rates to find easy alternatives to the “cash program”.

The stuck exchange

A lot of things have changed in the last ten years; what started out as market liberalization has morphed into labour freedom for the knoworker (knowledge worker), and for the first time in history there are no borders to intelligent labour. Globally, countries must compete for talents in the same way they do for capital and regulators are yet to recognize the new challenge. As in all things new, it in itself presents new opportunities and we in Jamaica must move with deserved speed to take advantage of what lies ahead.

It is in this regard that we want to explore some initiatives for consideration by our stock exchange. The Jamaica Stock Exchange (JSE) has made significant strides in the last decade, particularly in regards to electronic trading. Unfortunately, that is where it is stuck. Instead of wasting its time and resources on public education, take a page from the book of OLINT….. and build a better mouse trap, and they will come.

Alternative investments

The combination of the internet and the knoworker has changed the division of reward (profit). Those in Silicon Valley has recognized it for some time, and from back in the days of the dotcoms remuneration was weighted more in favour of options than base pay. When David Smith separated from Jamaica Money Market Brokers (JMMB) one of the larger financial institutions I understand, made him an offer to trade currency, so ridiculous was it that he decided to do it for himself.

There is an old Jamaican fable that says, “when pig ask him mother how her mouth so long, she said, you a come you will see”. Alternative investment (AI) is not going away anytime soon and there are several things the JSE can do to maximize its potential.

Circuit disruption

The circuit breaker rule is a relic of the past and a wartime measure. Instituted shortly after the 1993 collapse of the stock market, it was a mean to contain wild market swings by limiting the movement of individual securities within a 15% band in any trading day. This is a stock market, not a Sunday school picnic. The JSE has the ability to facilitate the use of stop losses by investors instead of the day care/ nanny facility it is conducting.

A more sensible approach would be to set the breaker at the market level, similar to the approach of their more developed counterparts.

The foreign exchange market is the most volatile market in the world and a swarm of Jamaican investors are attracted to it. What is the message to the JSE?

Its fine time

Directors of publicly traded companies on the JSE are having a fine time. Or are they?

Take the latest case of Seprod and look at the history of such behaviour by some other companies of ilk mind. For whatever reason, they fail to file their financial reports within the stipulated time; all the stock exchange can do is first suspend and ultimately delist. But guess what, the derelict directors continue to run (ruin) the company, draw fees and or salaries and without any accountability to investors ….. while investor’s dollars are still under (seizure) their control. Pulse Investments did it and is back at the trough, West Indies Pulp and Paper is still in the wilderness somewhere.

Has anybody heard of the Financial Services Commission (FSC) in all of this? They earn a tidy sum as regulators from the JSE, but for doing what? The buck stops with the Ministry of Finance who is obviously not aware of this loop hole. I implore the Minister to bring legislation to have Directors fined for late filing and repeat offenders jailed. Also, for companies that are suspended they should be required to convene of a special general meeting to appoint temporary managers within a fixed period.

Until the breech is fixed there is no point in promoting our stock exchange on Wall Street, the sucking sound of the sinkhole is audible from a distance.

Virtually possible

The more innovative brokerage houses like DB&G, Mayberry Investments and JMMB are rearing to go, so what is holding the JSE from enabling live trading. There is a whole cottage industry that has evolved around information services from which the JSE can earn significant revenue. Half the brokerages only take orders from clients and the rest all research the same few companies. Consolidation of brokerages is only a matter of time. 

Like it or not the JSE must compete for investment dollars with all the major exchanges, so, there is really no point in restricting direct trading to brokerage houses when others allow client internet access. It is efficient, convenient, faster and a lot cheaper than broker assisted trading.

The possibilities here are endless, all favouring investors, brokers and the exchange. Depending on the level of risk the investor is willing to undertake, there are options trading and short selling that should be made available. And so too are the tools for effective risk management.

Trading stocks is child-play to trading currencies and the JSE should utilize its advantage in gaining a sizeable share of the risk takers market. Their job is to facilitate the orderly development of the capital market, if secondary players want to punter let it be, they could serve as market makers. In the end, a fool and his money shall soon part, that is inevitable and there is nothing the JSE can do to stop it.