Berry, left, and Bunting
Lavern Clarke, Staff Reporter
DEHRING Bunting & Golding (DB&G) says it is in the process of wooing other financial firms to participate in the options market it is trying to pioneer in Jamaica, arguing that the process was fairly complicated and could not be rushed.
In May, the investment bank announced that it would be offering put and call options starting June, for which option prices for listed companies would have been posted on its Web site.
But on Wednesday, the ten-year-old company backed away from the timeline it had given.
"You can't have a viable options market with us alone being involved; it requires other players," said Mark Walters, vice president of treasury and asset management. "To the extent to which other players get involved with options, then you will begin to see it becoming more dynamic."
But the market is taking time to understand the new offer, given the complex nature of the product and the highly specialised analysis that is required for its pricing. DB&G, in preparation for its introduction, had staff trained abroad, but the area remains "relatively new to a lot of fund and investment managers in Jamaica."
Nevertheless, Mr. Walters said that there is interest locally as well as within the region, and that DB&G remains committed to "doing the hard work" required to build an options market.
For now it is concentrating on explaining the product's intricacies to investors and investment managers.
"If we are to develop our financial markets these are some of the instruments we will have to move to," said Mr. Walters. He adds that with liquidity being among the main factors affecting the local financial market "We cannot have enough free float of stocks being traded between the person who wants to buy and the one who wants to sell."
Specified period of time
An option is a contract that gives its holder the right to buy or sell foreign exchange or securities within a specified period of time, and at a price that is fixed. Options are used to hedge against currency and interest rate risks, and as a means of raising capital.
The product is not entirely new here, as investment houses do write the odd contract when requested, according to Christopher Berry of Mayberry Investments Limited. But Mayberry Investments is sold on DB&G's plan for a more sustained options market that provides daily quotes, especially, said Mr. Berry, since there is sufficient interest from other players.
"For it to really work, you need more than one player at the same time. I think they have brought it up at a good time," said Mr. Berry. "Because I'm getting the feedback that there is interest out there, I'm willing to invest money to make it a readily available product."
The central plank of the market is information flow, to which Jamaica's stock market appears almost indifferent, and options require timely and accurate information on which to base the analyses.
But Mr. Walters argued that local stocks do respond to information as it surfaces, and that where the anomaly is manifested is the speed of information flow throughout aspects of the market.
"When information comes to the (public), it is information that has been in the market two, three weeks before," he said, comparing Jamaica to the United States where the information becomes available to everyone at basically the same time, making for a quicker reaction time in that market.
"In a society where perhaps the chairman (of a company) is known by a lot of people, a lot of the time the information seeps out; therefore we don't see the instant movement" in stock prices, said Mr. Walters. "The fact that it comes to market and the stock price doesn't jump up or drop is because the market has taken this into consideration already."
He was confident that options will eventually become a norm in the market in the same way that repos took time to be accepted. Mr. Berry was similarly sure, but predicted that it might be another two years before the market truly opens up to the new product, and that it will require a formal 'education' component pitched at the investing community.
