Financial Market Analysis

U N I T 2 – T H E J A M A I C A S T O C K E X C H A N G E

Financial Market Analysis ACCT3602

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The Stock Market

 The stock market is one of the most vital areas of a market economy

 it provides companies with access to capital for business expansion

 provide investors with a slice of ownership in a company and the potential of gains based on the company's future performance.

 Making sure we are financially secure is a vital part of how our economy grows.

 Investing in securities is often a significant component of an investor's portfolio.

The Stock Market 3

 The Jamaica Stock Market is a vital link between companies needing capital and Jamaicans with money to invest.

 When a company needs to raise money to expand, it sells stocks or bonds to the public through the financial markets. Individuals become investors in this company by purchasing those securities.

 As investors and part-owners in companies of their choice, they are able to participate in the companies’ growth and development. In turn, companies which raise capital from the sale of shares are able to expand.

The Stock Market 4

 The number of Jamaicans who own stocks through individual investments or through unit trusts is growing and many more participate in the stock market through investments in retirement funds, insurance companies and banks.

 Owning stock allows investors, large and small, to share in the world's economic growth and, vitality. Central to this activity is the Jamaica Stock Exchange (JSE), where billions of dollars worth of stocks change hands annually.

 The JSE plays a unique role in providing companies who list their securities on the Exchange with a liquid market for the trading of those securities; benefiting all investors.

Evolution of the Jamaican Stock Exchange (JSE) 5

 Prior to Jamaica Stock Exchange (JSE)  Jamaicans would buy and sell shares of corporations and companies through banks, lawyers

and other individuals.  The Kingston Stock Market

 was established in 1961 under the guidance of the Bank of Jamaica, to co-ordinate the activities of traders, or persons who bought and sold shares on behalf of individuals.

 The Jamaica Stock Exchange  Incorporated as private limited company in August 1968 but began operations in February

1969 at the Bank of Jamaica Building.  The first official trade on the Jamaica Stock Exchange took place on Monday, February 3,

1969.  It relocated to its current location at 40 Harbour street, Kingston since 1998.

 The four founding members were:  Mr. Willard Samms - Annett & Company Limited  Mr. Raglan I. Golding - Capital Market Services (Ja) Ltd.  Mr. Edward E. Gayle - Edward Gayle & Company Ltd.  Mr. Anthony Lloyd - Pitfield Mckay Ross & Co Ltd.

Evolution of the Jamaican Stock Exchange (JSE) 6

 One of the roles of the JSE was to promote the development of a vibrant

capital market and to ensure orderly trading in listed securities  That is stocks, shares or bonds that are traded on a stock exchange.

 JSE Governance Structure  The Exchange is governed by a Council (Board of Directors) which has the following

composition:

 The Governor of the Central Bank (Bank of Jamaica) or his nominee.

 A representative of the Ministry of Finance.

 Three persons other than seat-holders.

 Upwards of ten seat-holders representing members.

 The Chairman and Deputy Chairman are elected by the Council annually.

 The General Manager /Secretary is in charge of the day-to-day operations of the Jamaica Stock Exchange.

Evolution of the Jamaican Stock Exchange (JSE) 7

 Role of the Council (Board of Directors)  is a self-regulatory body that monitors the activities of the stock market.

 The Council’s functions include:  Setting guidelines and rules of operations at the Exchange to ensure that the stock

market and its broker-members operate at the highest possible standards.

 To determine the shares to be listed on the exchange.

 In this regard, the Council has the power to suspend companies which violate the rules of the Exchange from trading, or to de–list companies which fail to meet the requirements of the Jamaica Stock Exchange.

 The decisions of the Council are arrived at on the basis of a majority vote.

Evolution of the Jamaican Stock Exchange (JSE) 8

 Principal Objectives of JSE are:-  To promote the orderly development of the stock market and the Stock Exchange in

Jamaica;

 To ensure that the stock market and its Broker-members operate at the highest standards practicable;

 To develop, apply and enforce rules designed to ensure public confidence in the stock market and its Broker-members;

 To provide facilities for the transaction of stock market business;

 To conduct research, disseminate relevant information and maintain local and international relationships calculated to enhance the development of the Jamaica Stock Market.

 To educate investors/companies on all aspects of the equities market in an effort to facilitate the entry of new investors to the stock market.

Functions of the Jamaica Stock Exchange (JSE)

 To provide an additional channel for encouraging and mobilizing domestic savings.

 To foster the growth of the domestic financial services sector.

 To provide savers with greater opportunities to protect themselves against inflation.

 To increase the overall efficiency of investment.

 To facilitate privatization.

 To improve the gearing of the domestic corporate sector and help reduce corporate dependence on borrowing.

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Evolution of the Jamaican Stock Exchange (JSE) 10

 Securities traded on the JSE include:  Ordinary/Common shares

 Preference Shares

 Corporate Bonds

 Government Bonds are not listed on the Jamaica Stock Exchange.  These are traded by the Bank of Jamaica in an over the counter market.

 For the first time in Jamaica's history a US dollar share was listed on the Jamaica Stock Exchange on Thursday, July 18, 1996.  This was the Citizens Bank US Dollar Convertible Cumulative Redeemable Preference

Share.

Listings on the JSE 11

 The listing of securities on the Exchange  is in the absolute discretion of the Council/Board of the Exchange which may

delegate such powers to a duly appointed committee.

 The markets in the JSE are:  Main Market

 Junior Market

 Combined Market

 USD Market

 Bond Market

 Junior USD Market

 Private Market

JSE Main Market Listing 12

 The JSE Main Market lists ordinary and preference shares, which represent various business sectors:  banking and finance; manufacturing; retail; communications; insurance; leisure;

conglomerate; services and real estate.

 The criteria for listing on the JSE Main Market are as follows:

 Must be incorporated or registered and operating in a business located in a CARICOM country.

 The total issued share and loan capital of the company must be J$200,000 or more; the share capital portion being not less than $100,000.

 All of the issue of the security which is the subject of the request for listing is to be issued and fully paid.

JSE Main Market Listing 13

 Ordinary Shares/Stock -The issued nominal value must be $250,000 or more; and a minimum of 100 shares/stockholders holding not less than 20% of the issued ordinary capital

 Irredeemable Preference Shares and/or Preference Shares convertible into Ordinary Shares/Stock: Issued nominal value must be $500,000 or more

 Redeemable Preference Shares: Issued nominal value of $100,000 or more.

JSE Main Market Listing 14

 Companies incorporated or Registered in Jamaica may be listed by one of the following methods:  Prospectus Issue:

 an offer to the public by or on behalf of a company at a fixed price;

 Offer for Sale:  an offer to the public, by or on behalf of a third party at a fixed price.

 Offer by Tender:  an offer to the public by or on behalf of a company or a third party by tender;

 Placing:  an offer through broker-members of the Exchange to sell the securities of a company to

the public;

 Introduction:  where none of the company's securities is being offered to the public or trading.

JSE Junior Market 15

 The JSE launched the Junior Market on April 1, 2009  Which was designed to encourage and promote investment in Jamaica’s

entrepreneurship, employment and economic development.

 It was a collaborative efforts of the Government, the Board of the JSE, the Financial Services Commission and Steering Committee composed of key stakeholders.

 The Junior Market allow investors to put capital into legitimate small and medium sized companies (SMEs)  Their shares are traded on a special JSE platform.

 Listed on the JSE Junior Market are ordinary and preference shares  representing various business sectors: banking and finance; manufacturing; retail;

insurance; leisure; services and real estate.

JSE Junior Market 16

Each company that wants to join the Junior Market

 Must be incorporated as a public limited company  in Jamaica or elsewhere in the CARICOM region.

 Have no association with other listed companies, or prior history of listing  must demonstrate to the JSE that (a) it has not been previously listed on the Main

Board of the JSE, or on the main trading plat form of any other stock exchange, and (b) it is not an “associate “ (including a subsidiary) of any such listed company.

 Initial Public Offering  Each company that wants to join the Junior Market must raise a minimum of

J$50m in new funds in an initial public offering that is made, subject to a prospectus. The initial public offering must relate to equity shares, or convertible or other shares that have the characteristics of equity (rather than debt) securities.

JSE Junior Market 17

 Minimum and Maximum Capital, and Number of Shareholders

 Each company that is admitted to the Junior Market must have stated capital of not less than J$50m and not more than J$500m following its initial public offer, and during its life on the Junior Market.

 In addition, each such company must have at least 25 shareholders holding at least 20% of the issued equity share capital in its first 5 years on the Junior Market, and at least 50 shareholders holding that proportion in its second 5 years on the Junior Market.

 Appointment of a Mentor

 Each company that wants to join the Junior Market must, unless the JSE agrees otherwise, appoint a mentor who will act as a compliance adviser to the Board of Directors.

 The mentor must be a suitably experienced person, and he must enter into the standard form Mentor Agreement and be approved by the JSE for the purposes of the Company’s admission to the Junior Market.

JSE Junior Market 18

 Appointment of a Board of Directors  Each company that wants to join the Junior Market must appoint a Board of Directors

that is suitably experienced as a collective body, to govern and represent the company.

 The JSE tracks the performance of the market by maintaining indices.  Uses the weighted average market capitalization method to calculate its indices.

 The JSE Junior Market Index measures the performance of all the ordinary shares listed on the Junior Market.

 Settlement is done at T+2 and daily information is disseminated on the activities of this market through the usual channels inclusive of the JSE’s website

Combined Market 19

 The performance of all the companies with ordinary shares listed on the JSE Main and Junior Markets is tracked by the JSE Combined Index.  Tracking the performance of both markets by one index will allow investors,

analysts and researchers to see the performance of the overall market at a glance

without having to look at the markets separately.

 The JSE Combined Index provides a daily indicator of the overall performance of the market and its movement.

 The JSE Combined Index commenced on April 1, 2011.

USD Market 20

 On July 5, 2011, the Jamaica Stock Exchange, as the first in the English Caribbean, launched the US Dollar Equities Market.  It allows companies to list their shares in US dollars and also allow for trading and

settlement to take place in US dollar.

 This market further expands the product offerings of the JSE  It provides additional investment options for persons interested in diversifying their

portfolios via the Exchange.

 This market is governed by the rules of the Main Market and trading operates according to the trading rules for all the securities listed on the JSE.

 Similar to the other markets, settlement is done at T+2 and daily information is disseminated on the activities of this market through the usual channels inclusive of the JSE’s website.

Bonds Market 21

 The Jamaica Stock Exchange launched the Bond Market in June 2013 as a means of:

 Increasing the number of options available for corporations to efficiently raise capital

 Widening choices that individuals and corporate investors have to invest

 Assisting the efficiency of monetary management

 The JSE bond market is a facility where investors buy and sell debt securities, either directly from the borrower at issue or afterwards from other investors.

 This market will facilitate the trading of bonds with the aim to increase efficiency, transparency and liquidity of the bond market.

 Any company that is incorporated in a CARICOM country may list its fixed income securities on the JSE Bond Market.

 Similar to the equities market, companies interested in listing their bonds will be required to follow the requirements as outlined in the JSE Rule Book (Main Market).

Private Market 22

 The JSE Private Market (PM) platform facilitates the listing and managing of private debt and equity issues. This facility is a first of its kind in Jamaica.

 The benefit to companies and investors include:  Private companies can now raise equity and/or debt capital on a regulated platform

 Seamless transfers of securities among private investors

 Efficiency in tracing changed shareholder positions

 A full suite of registrar, trustee and transfer services

 Market information on private equity and debt transactions

 Sellers will have easy access to their transaction activity and executed electronic agreements

 Real-time reporting on sell orders which can be generated directly from the platform

JSE Platform 23

 Since January 2000, the Jamaica Stock Exchange has had an automated trading platform, called Horizon.  The back office operations which involves clearance and settlement was automated with the

establishment of the Jamaica Central Securities Depository in June 1998.

 Some of the benefits of automated trading are: Greater efficiencies through increased accuracy and increased processing speed and lower operating costs. Reduced risk associated with clearing and settling securities transactions, also shorter settlement cycles.

 Delivery versus payment - the exchange of securities and the cash to settle.  There has been increased global attractiveness of the Jamaican stock market through the

adoption of generally accepted international standards. The JSE has demutualized since 2009 and is listed on the Exchange.

 Its regulatory functions are now overseen by the Regulatory Market & Oversight Division (RMOD) that is governed by Regulatory Market & Oversight Committee which comprises of the Independent Members of the Board and they are autonomous.

Reporting Requirements of JSE listed Companies 24

 Listed companies are required to conform to provisions of the Companies Act of Jamaica and to provide the Exchange with annual audited financial statements with certain minimum information and within specific time periods.  In addition listed companies are required to submit quarterly unaudited financial

reports.

 In case of Take-Overs & Mergers, the Exchange imposes specific obligations on the listed offeror or Offeree Company.  The Jamaica Stock Exchange defines "Take-Over" to mean "an offer made to

shareholders, to purchase such number of equity shares of a company that, together with the offeror's presently-owned shares will in the aggregate exceed 50% of the outstanding shares with voting rights of the company."

Reporting Requirements of JSE listed Companies 25

 The general principles applicable to Take-Overs and Mergers include:  Strict compliance with the detailed regulations.

 That stockholder is given sufficient evidence, facts and opinions upon which an adequate judgement and decision can be reached

 No action taken by the Board of the offeree company, without the approval of stockholders in general meeting, to frustrate a bona fide offer.

 The prevention of the creation of a false market in the shares of the offeror or offeree company.

 Rights of control to be exercised in good faith.  The oppression of minority shareholders is wholly unacceptable.

 All stockholders of the same class of offeree company are to be treated similarly by offeror company.

Compensation Fund 26

 A Compensation Fund has been established in 1970 to indemnify losses to Broker-members' clients in certain situations.  Member-Dealers who have lost money as a result of a defalcation or fraudulent

misuse of securities or document of title to securities or of other property, by a member-dealer or any of his directors or employees.

 investments in Stocks and Shares of companies listed on the Jamaica Stock Exchange and

 as of July 1, 1999, any claim in denominated money market instruments.

 The Fund does not protect against losses resulting from the rise and fall in the market value of investments.

 Contributions are made by Broker-members based on the consideration for equity and preferred transactions.

Compensation Fund 27

 In order to provide further protection to the investing public, the Exchange can intervene and run and/or wind-up the affairs of a Broker- member in certain situations where clients' interest are in jeopardy.  The Council of the Jamaica Stock Exchange monitors the financial situation of all

brokers.

 When the Exchange sees fit, it can act on an a priori basis to prevent a broker from continuing to trade before a situation becomes critical.

More about JSE 28

 For more information on the Jamaica Stock Exchange, visit:

https://www.jamstockex.com/about/frequently-asked-questions-jse/

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The Role of a

Stock Market