Lower transaction costs could boost trading and liquidity on Trinidad and Tobago bourse

The Trinidad and Tobago Stock Exchange (TTSE), established in 1981 under the Securities Industry Act, is the centre of capital market activity in the twin-island nation. The Ministry of Finance overhauled regulations governing the TTSE in the mid-1990s by composing the Securities Industry Act of 1995, which created the Securities and Exchange Commission. The law was then revised a second time to introduce the Securities Act of 2012, the current market rulebook.

The TTSE lists many of the country’s most important firms, such as Republic Financial Holdings, Scotiabank Trinidad and Tobago, Guardian Media, the West Indian Tobacco Company, Trinidad Cement, and energy company Trinidad and Tobago NGL (TTNGL). In 2017 public offerings of new tranches of shares were carried out by First Citizens Bank and TTNGL, raising around TT$1.8bn ($267m). The exchange has grown and developed over the last three decades, acting as a vehicle for raising capital and facilitating share trades. Still, some brokers and analysts believe the TTSE must continue to evolve to bring down costs and boost trading activity.

State of Affairs

One of the most significant limitations on capital market development in T&T is insufficient liquidity. Critics state that the exchange acts to sell tranches of equity in local corporations and parastatal companies, but does not facilitate robust trading among individual or institutional investors. Therefore, the overall level of trading on the TTSE is quite low. “Banks in T&T have excess capital and they are looking for good opportunities,” George Sheppard, CEO of Sheppard Securities, a Trinbagonian financial advisory firm, told OBG. “The problem is that transaction costs on the exchange are high, which results in low trading volume and very little liquidity.”

Only a few dozen trades per day were logged on the TTSE in 2017, resulting in a total of 12,280 trades over the course of the year. This lags far behind activity on the rapidly growing Jamaica Stock Exchange (JSE), which recorded 43,431 trades in 2017 – more than triple the level seen in T&T. The JSE volume represented a 41.5% increase over 2016, while the TTSE saw its number of trades rise by only 5.2%. “One would expect that given the size of the capital market in T&T relative to the rest of the islands in the Caribbean, there would be far more sophistication,” Gregory Hill, managing director at local ANSA Merchant Bank, told OBG.

Indeed, the overall market capitalisation of the TTSE is far greater than that of the JSE. T&T’s bourse ended 2017 with a market cap equal to TT$128.3bn ($19bn), while Jamaica’s exchange recorded J$1.16trn ($9.1bn). Still, the JSE is growing much faster than the TTSE – increasing its market capitalisation by 45.3% in 2017, as compared to 3.7%, and hosting 74 listed companies, versus 31 on T&T’s stock exchange.

Market Operations

Despite being considerably smaller in terms of market capitalisation, Jamaica can serve as a model for T&T to evolve its operations and raise its reputation. The JSE has been recognised for its success, being named the best-performing market in the world in 2015 by Bloomberg. “If we are to promote T&T as an international financial centre, we must first foster an enabling environment,” Hill told OBG.

Other academics and market participants agree, and believe that the TTSE would benefit from updates to its structure and corporate governance system. Operating the exchange more like a for-profit business could allow for dramatically increased trading levels if directors open access to a broader array of players, as well as pursue cost-saving measures to lower trading fees charged to investors. “What we need is broader participation by more broker dealers and lower transaction costs on the exchange,” Sheppard told OBG. While the amount of the TTSE’s revenue derived from customer transaction fees dipped from TT$12m ($1.8m) in 2016 to TT$11.2m ($1.7m) in 2017, this was due to lower transaction values and not a reduction of fees. The stock exchange charges member firms a transaction fee of 0.18% of the value of shares traded.