Trinidad and Tobago's stock exchange operates as more of a custodian than a bourse

The country’s stock exchange was established in October 1981 under the provisions of the Securities Industry Act. Since 1995 the Trinidad and Tobago Stock Exchange (TTSE) and its members have been regulated by the T&T Securities and Exchange Commission, in accordance with the Securities Industry Act. The 1995 act was eventually repealed at the end of 2012 and replaced with the Securities Act 2012. The TTSE’s Electronic Trading System replaced a manual open outcry system in March 2005.

According to the TTSE’s 2014 annual report, there were 31 equity securities listed, including several companies that operate across the region but which are based outside of T&T, and two mutual funds. The aggregate market capitalisation of these securities was TT$114.68bn ($17.68bn). At one extreme is the Republic Bank with a capitalisation of TT$19.39bn ($2.9bn), while Berger Paints Trinidad was capitalised at TT$18.84m ($2.9m); the median capitalisation was TT$1.19bn ($183.5m). TTSE also has 28 different government-issued bonds listed, as well as two corporate bonds issued by Scotiabank T&T. There are seven member equity stockbrokers, five of which are affiliated with one or other of the eight commercial banking groups. Most of these companies are also bond brokers or government securities intermediaries. Nine other financial institutions are also government securities intermediaries.

Limitations

In theory, the TTSE connects the capital of T&T’s investors with leading companies that are active in the economy outside the energy sector. The reality is different. For many of the stocks, the free float is very small, with share registers dominated by institutional investors, strategic owners or multinationals. Average daily values traded in 2014 amounted to TT$4.5m ($693,900), representing a 1.7% rise over 2013, and a sharp rise over the average of TT$3.1m ($462,600) traded in 2012.

Over the four years to the end of 2012, the number of trades that were undertaken on an average day varied between 35 and 40; however, this figure steadily increased to 47 in 2014.

Moving Forward

Various factors have constrained the development of the market. These include the relatively low trading activities due to a low float and the fact that institutional investors generally adopt a buy and hold strategy for their investments. Additionally, there has been a decline in new listings on the stock exchange.

Private companies are generally able to raise funds for their operations from retained earnings, via private placements or via bank financing through close relationships with the country’s commercial banks. Thus far, there has been little progress towards the formation of a regional exchange.

However, the TTSE, along with its regional counterparts, has been moving towards the adoption of a common trading platform, which is a key step towards the establishment of a regional exchange.

The TTSE facilitates equities, bonds and mutual funds in both local and US currencies. Retail investors in T&T have a good understanding of pooled investments, as is evidenced by the fact that the state-owned mutual fund Unit Trust Corporation (UTC) serves 580,000 individual clients and institutions out of a working population of around 750,000 and a total population of around 1.35m. However, retail investors have not traditionally invested directly in stocks in a major way. Sarodh Ramkhelawan, manager of investments at Bourse Securities, told OBG that there are less than 20,000 brokerage accounts that participate in T&T’s local stock market.

Increasingly Looking to IPOs

The corollary of companies not having seen the stock market as a key source of capital in the past is that initial public offerings (IPOs) have been infrequent. However, this is now beginning to change. In late 2013 the government sold just under 20% of First Citizens Bank, the second-largest locally owned financial institution, by way of an IPO. The deal was a success in that the government was estimated to have raised about TT$1.1bn ($169.62m) from the sale, and investors who participated in the IPO have done well. The shares were offered to investors at a price of TT$22 ($3.40) and have traded at between TT$35 ($5.40) and TT$40 ($6.17) for most of early 2014.

Recent Troubles

However, the IPO was marred by controversy. One of the bank’s then senior officials managed to acquire a substantial allocation of shares through the part of the offer that had been reserved for employees, and then sold all the stock in January 2014 at or near the highest share price (over TT$40, $6.17).

While it was not clear that any laws or regulations had been broken, the issue quickly became political. In February 2014 Larry Howai, the minister of finance and the economy, announced that an audit would be carried out by PwC regarding the entire IPO.

In her address on the state of the economy in January 2015, Prime Minister Kamla Persad-Bissessar also noted that the government is committed to the IPO of 49% of T&T NGL Limited, a holding company owned by the National Gas Company of T&T (NGCTT), which also holds a 39% stake in Phoenix Park Gas Processors. Phoenix Park is the only natural gas processing and natural gas liquids fractionation operation in the island nation, as well as being the largest supplier of propane, mixed butane, isobutene and natural gasoline in the Caribbean.

Assuming that this IPO goes ahead, it will facilitate portfolio investment in T&T’s gas industry. Since 1999, it has been possible for both domestic and foreign investors to get indirect exposure to the industry through the listed National Enterprises Limited (NEL). This is a strategic investment company operating on commercial lines, and which consolidates the government’s holdings in some state-owned enterprises. The government has retained a 66% stake in NEL, while NGCTT holds 17%. NEL owns 10% of Power Generation Company of T&T through NEL’s fully owned subsidiary NEL Power Holdings.

NEL also owns 51% of National Flour Mills, 51% of Telecommunications Services of T&T and has a 51% stake in Trinidad Nitrogen Company. NEL’s two associates are NGC NGL Company and NGC T&T LNG. In November 2014 a consortium consisting of NEL, UTC and the National Insurance Board of T&T acquired a 10% stake in Phoenix Park for $168m from a subsidiary of the US’s General Electric.

Krishnadath Ramlogan, the general manager of NEL, told OBG that while NEL manages its portfolio, it does not take an active role in the firms in which it invests. Ramlogan said, “We are looking for investments to diversify our portfolio and spread our exposure to the energy and petrochemicals sectors. Our strategic plan has identified sectors of interest for exploring investments such as financial services, power and utilities, and downstream energy.”

A New Agency

The TTSE introduced dematerialisation of securities investment in January 2003, when its subsidiary – the T&T Central Depository (TTCD) – commenced operations.

The TTCD acts as the clearing house for securities settlement, and as the central depository and registrar. In 2013 the TTCD established a formal relationship with Euroclear whereby the TTCD acts as sub-custodian in relation to international assets of T&T institutions, which can be settled through Euroclear, such as UTC’s investments in US corporate bonds. Carla Morton-Campbell, chief operating officer of the TTSE, told OBG that the TTCD provides the TTSE with a source of income diversification and the opportunity to boost fees from securities services, while strategically expanding its custodian services to include international securities.

Morton-Campbell said that the TTCD and TTSE would work with the Central Bank of T&T, which acts as the central clearing bank for T&T dollars cash settlements among the seven broker members of the TTSE on a T+3 basis. Cash is moved to and from brokers’ master accounts with commercial banks.