By Andrew Green, Staff Reporter
Chin, Latibeaudiere and Schnoor
MOST OF the island's securities dealers can no longer trade in foreign securities on their own account, based on instructions from the Bank of Jamaica (BoJ).
Only banks, merchant banks and building societies are authorised dealers permitted to trade foreign currencies and foreign securities on their own account, says BoJ Governor Derick Latibeaudiere. Securities are financial instruments such as stocks and bonds.
"We are trying to regularise a system where people were operating illegally," Mr. Latibeaudiere said. "As of now, what we are saying is that you can continue to deal in government securities, but whatever other securities you wish to deal in, you have to make specific applications to the Minister of Finance."
There are certain capital liquidity requirements needed to be an authorised dealer, Mr. Latibeaudiere said, referring to Part 4 (a) of the Bank of Jamaica Act. Those not authorised to deal in foreign securities can transact business in Government of Jamaica securities, "but if you have any other security that you need to deal in, you have to make specific application to do it. It may or may not be approved."
Trading in foreign securities has become a fixture in the financial markets, although the law restricting the financial instruments that securities dealers could handle was never removed, said Jamaica Securities Dealers Association (JSDA) vice-president Anya Schnoor. She said the industry had matured over the past decade without the application of this rule.
"A letter from the BoJ to the JSDA executive has reminded dealers that they need to comply with regulations," she said. The letter, received by the JSDA on April 11, said transactions done in the past would not be questioned.
The dealers had $240 billion in funds under management as at September 30, 2002, Minister of Finance and Planning Dr. Omar Davies said in February. Speaking at the inauguration of the JSDA, he had warned that in designing measures to curb money supply, the BoJ would have to take into consideration the large amount of funds held by securities dealers.
Included among the dealers are banks, merchant banks, stock brokerages, life insurance companies, credit unions, pension funds, unit trusts, building societies and independent dealers.
There are more than 40 securities dealers and only a handful of them are authorised dealers, said JSDA president Peter Chin. Excluded are some of the major players in the money market.
"It doesn't make any sense," said one of the dealers adversely affected. Speaking on condition of anonymity, he said "there are a lot of things dealers would have to consider now, such as what securities you hold now and what you should do with them."
Trading in foreign securities constitutes a significant part of the business of some dealers now excluded, Mr. Chin said. It will also affect cross-border stock market trading with Trinidad and Barbados.
But Mr. Latibeaudiere said the rules restrict trading by dealers on their own account. He said dealers would not need authorisation to trade foreign securities on behalf of a client.
"What we have said is that we do not want securities dealers behaving like authorised dealers," Mr. Latibeaudiere said. "There are certain issues of security, solvency and just who deals in the foreign exchange of the country."
"The fear is that changes do not stop an individual cashing in his securities and taking his money out of the island," Mr. Chin said. "It has far reaching implications."
The JSDA executive met on Wednesday to discuss their approach to the regulatory change, Mr. Chin said. "The next step would be to communicate with the Minister (Dr. Davies) about the implications. The Minister is the only one who can do anything about it," he said.
