Limegrove Lifestyle Centre. Photo courtesy Republic Bank Barbados
The development of the capital market originates from early economic theory on the Circular Flow of Income. In the model, firms and households interact with one another in both the product or goods market and the factors of production (land, labour, capital) market or factors market.
The Securities Exchange of Barbados was established in 1987 under the Securities Exchange Act, Cap 318A, of 1982. This Act was repealed and replaced by the Securities Act 2001-13. With the passage of the Securities Act 2001-13, the Securities Exchange of Barbados, through re-incorporation, evolved into the Barbados Stock Exchange (BSE) in August 2001. The exchange has provided the platform for institutional and individual investors to create wealth from investing in shares of companies. It has advanced from the archaic days of the “open out-cry” system to ultramodern technology which has enabled the brokers to trade from the comfort of their offices. The management of the BSE has made substantial progress to establish a Caribbean exchange between Barbados, Jamaica and Trinidad & Tobago which use similar trading platforms. In an attempt to increase trading activity, the BSE has also been creating awareness about investing through seminars.
In advertising the good performance of its mutual funds, Republic Funds (Barbados) Inc. , previously BNB Funds Inc., has also played its part in educating our citizenry. In the absence of the technical ability to apply ratio analysis and performance metrics, investors benefit from the Republic Bank’s professional management of mutual funds. By nature, this product affords investors the opportunity to participate indirectly in the underlying instruments, which may be equities acquired on stock exchanges or debt instruments from private issuers and government. Despite the removal of the tax allowance, investors have been able to capitalize on the returns from this vehicle, which has been a proven alternative to commercial banks’ interest-bearing products.
The Central Bank of Barbados announced that effective April 21, 2015, it will no longer stipulate a minimum rate of interest on savings deposits at commercial banks. Based on market conditions, banks can determine the rate to be paid on savings accounts, as is done for other interest rates. This would allow commercial banks to set savings deposit rates in line with other deposit rates, loan rates and rates on mortgages and correct some anomalies in the banking system. Since the announcement, interest rates on savings have dropped significantly creating the need for a product for depositors. In June 2015, the Central Bank issued four (4) tranches of five-year, Government Savings Bonds totaling $75 million. With a yield to maturity of 5.5%, the bonds were well received by the public. The populace has gravitated to this vehicle as an investment option for many years.
Are bonds, mutual funds and equities, in conjunction with traditional bank products adequate for our society? Has our financial market developed enough for more sophisticated instruments such as collateralised debt obligations or principal producted notes with embedded options? It does not appear as though the market is equipped to handle some of the exotic vehicles produced in other established jurisdictions like the U.S.A, Europe and Japan. However, high liquidity, erudite investors and technological advances are among the abundance of factors that support the development of additional product offerings to investors. Republic Bank has been known to create products to assist in the creation of wealth for investors and the development of the societies in which it serves; instruments to assist business in various sectors which formed part of the underlying portfolio of another vehicle which investors participate in; products involving the pooling of investor funds to finance public sector projects, creating Public Private Partnerships.
The Barbados Stock Exchange is developing an International Securities Market (ISM) to supplement the Barbados capital market. The ISM would be a dedicated market for the listing and trading of securities of issuers incorporated in Barbados that would otherwise be listed and traded on other exchanges like Cayman, the Bahamas or Guernsey. This market is designed to assist new and/or prospective International Business Companies (IBCs) interested in incorporating in Barbados as well as raising capital. The ISM will attract Republic Finance & Trust (Barbados) Corporation and other member-participants from the local brokerage community, as well as the existing and new international offshore banks, international business entities, and international securities dealers.The ISM is expected to expose venture capitalists to Barbados’ growing entrepreneurial sector. This initiative bodes well for the local IBC sector which is constantly under threat from competition by other international business centres.
Financial institutions are to be the catalyst of the Barbados capital market developmental process. By understanding the businesses, specially engineered products can be designed to provide non-traditional financial solutions. Such innovation is welcomed, as this would contribute to the development of the capital market.