WHEN A firm lists its shares or other capital assets on a stock exchange, it buys into a range of shared disciplines, commitments and benefits.Ranking high on the benefits side, according to JSE general manager, Wain Iton, is the increased efficiency and reduced share transfer costs resulting from the automation of the Stock Exchange and of the JCSD. Mr. Iton said that the level of reduction of transfer costs is particularly pronounced when large volumes of shares are traded.
Other benefits cited by Mr. Iton included lowering information development and dissemination costs to the listed companies. This is achieved, in part, through central publicity and promotion of the company by the Stock Exchange and by fostering international communication linkages via the JSE's web site. The Stock Exchange also makes possible the valuation of the listed company through the market as well as the creation of a market for the company's shares. These assertions are supported internationally. Consider, for example, the summary of benefits to listed firms in a recent U.S. Securities and Exchange Commission Rules publication. By listing on a stock exchange, the publication highlighted, "a firm can reduce its transaction costs" while benefiting from services provided by the exchange or from the effects of being listed, such as:
The sourcing of capital
The provision of liquidity
Monitoring of trading patterns
Enhanced corporate governance
Dispute resolution
Standardised contracts
Equally, if not more important, in JSE chairman Roy Johnson's view, is the fact that when firms successfully complete the listing process with the Jamaica Stock Exchange, they send a message to the market that they believe in and will uphold the principles of disclosure, transparency, accountability and of best practices in corporate governance. "This is vitally important," Johnson said, "because these principles go to the core of the securities business."
"Investors need to know that, whether they are large or small, wealthy or not, they all have equal access to the same information and that they all have an equal chance to gain or not from the same share transaction or trade. Beyond the forces of supply and demand, the strength of a market is based on investors' expectations and they have a right to expect that they are being treated fairly at all times."
In a broader sense, stock exchanges can contribute to the health of the economies in which they are located. They do this by being an orderly means of promoting entrepreneurship and productivity through share ownership.
It is generally accepted that Jamaican businesses still have a heavy bias towards funding their activities through debt. This is due both to the lack of appropriate equity financing opportunities for small-to medium-sized firms and to an aversion to sharing ownership with outsiders among these and even larger firms.
A recent study commissioned by Korea's Ministry of Finance concluded, among other things, that one of the factors that contributed to the recent Asian financial crisis was the, "unduly heavy reliance on the banking sector and the relative weakness in the capital market both equity and fixed income security segments resulting in the lack of transparency in financial operations and causing excessive corporate debt exposure and serious financial fragility."
That conclusion could be applied equally to Jamaica, Johnson said and the regulatory agencies as well as the Jamaica Stock Exchange have adopted measures to prevent the recurrence of such circumstances in Jamaica. A series of targeted seminars for present and potential listed companies is planned and the JSE's business development function to increase listings has been revived. "Underlying all our efforts', Johnson added, " is the protection of shareholder rights."
This column is part of the on-going public education programme of the Council of the Jamaica Stock Exchange.
