THE EASTERN CARIBBEAN SECURITIES EXCHANGE: THREE YEARS AND ROLLING. A Progress Report. Prepared by

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1 THE EASTERN CARIBBEAN SECURITIES EXCHANGE: THREE YEARS AND ROLLING A Progress Report Prepared by BALJIT VOHRA General Manager Eastern Caribbean Securities Exchange 25th October 2004 INTRODUCTION The month of October marks yet another historic occasion for the Eastern Caribbean Securities Exchange (ECSE) as we celebrate our third anniversary. The ECSE has seen significant growth since its establishment in October 2001 with only 2 listed securities and 4 broker-dealer member firms. Today, the ECSE has 16 securities listed and 8 brokerage firms licensed from all across the currency union. The ECSE is succeeding in its vision by linking pools of liquidity for our government and corporate issuers. Its multi-functional, multi-choice platform has heightened transparency, accommodated multiple issuance and trading strategies and facilitated price discovery and flexibility. It has also attracted retail and institutional investors from our region and beyond. This report seeks to elaborate on our achievements and our priorities in the coming year. OUR ACHIEVEMENTS As we celebrate the 3 rd year of our establishment, we would like to take the opportunity to report on our progress in the following areas: Primary Markets Secondary Market Trading Foreign Listings Program Registry Services Intermediary Network Operations and Technology Corporate Governance Investor Education 1

2 Area I Primary Markets Regional Government Securities Market (RGSM) This year not only saw an increase in the use of this platform by regional governments but also for the first time by the region s corporate sector. The RGSM continued to develop using ECSE s primary market platform. The number of Governments issuing T- bills and bonds increased to four in The Government of St Vincent and the Grenadines to date has issued several Treasury Bills and bonds amounting to three hundred and two million dollars ($302,000,000.00). This government has been the most active on the Regional Government Securities Market. The Government of St Lucia has issued several bonds and Treasury bills. The total amount raised was one hundred and twenty seven million dollars ($127,000,000.00) out of a total of two hundred and eleven million and seventy thousand dollars ($211,070,000) worth of bids received. The Government of St Kitts was the first government to raise funds on the RGSM. A total of seventy five million dollars ($75,000,000) was raised for a 10-year bond. The Government of Grenada has come to the market on three occasions and has raised a total of sixty-five million dollars ($65,000,000.00). Through ECSE s wide network of licensed intermediaries, investors throughout the region have submitted over 400 bids ranging from five thousand dollars ($5,000) to over sixteen million dollars ($16,000,000) worth in excess of nine hundred and thirty eight ($938,000,000) million dollars. The ECSE s ability to channel this demand for securities using transparent competitive auction methodologies is helping drive down discount (interest) rates for Treasury bills (bonds) in the region. During this year alone, some Governments were able to reduce their borrowing costs by over 190 basis points, a testimony to our resolve to provide an efficient and competitive method of funding for governments on the RGSM. Corporate Equity & Debt Offerings During the year, the ECSE reached yet another milestone in hosting its first corporate Initial Public Offering (IPO) for the Anguilla Electricity Company Limited. In its efforts to raise revenue and broaden the ownership of the Anguilla Electricity Company (ANGLEC), the Government of Anguilla divested over 56% of its shareholding to Anguillian nationals. Licensed ECSE intermediaries were engaged by the Government of Anguilla to serve as Principal Brokers. The brokers assisted in the collection of subscriptions, the implementation of the allotment process and the registration and settlement of securities through the ECSE platform. The ECSE and its subsidiaries provided the platform for collection, allocation, registration and settlement of monies resulting through this offering. The seamless increase in ANGLEC s shareholder base to over 2,600 investors was made possible using the underlying primary market platform. 2

3 The ECSE also hosted the first public corporate bond offering on its primary market platform. The Eastern Caribbean Home Mortgage Bank (ECHMB) offered an eight-year, 5.5% secured fixed rate bond and raised over eighteen million dollars ($18,000,000). The ECSE looks forward to working with several private sector issuers in the region as they seek innovative approaches for their bond and equity raising initiatives. Area II Secondary Market Trading This year we saw the total number of listed securities eligible for trading increase from 3 to 16. These include 7 corporate (equities) and 9 government securities (T-bills and bonds). The equities include The Bank of Nevis; St. Kitts Nevis Anguilla Trading and Development Company; St. Kitts Nevis Anguilla National Bank and SL Horsford & Company Ltd from St. Kitts and Nevis; East Caribbean Financial Holding Company and St. Lucia Electricity Services Limited from St. Lucia and Dominica Electricity Services Ltd. from the Commonwealth of Dominica. On December 17, 2003 history was created on the ECSE when 1,128,941 shares were traded in a single day. These involved 1,106,941 shares of East Caribbean Financial Holding Company Ltd (ECFH). Other large single day transactions for individual equities have included over 545,000 shares of St Lucia Electricity Services Limited. Bank of Nevis has also seen some significant trading activity on a given single day and over a 1-week period. The stock has also seen significant capital appreciation in the past one-year. Total market capitalisation of listed companies as at the end of September 2004 amounted to over EC$680 million. The ECSE takes enormous pride in listing the growth-oriented companies of the region. Key to our culture is the cultivation of a strong and highly effective partnership with our listed companies. Not only do we give them access to capital, visibility and an exceptional portfolio of services; we also share their commitment to move our economies forward. Area III Foreign Listings Program This year progress was made on the finalization of the regime for listing of foreign securities on the ECSE. Foreign listings on the ECSE will represent an unprecedented opportunity for companies from the CARICOM region to experience our execution quality firsthand. The ECSE has worked closely with the Eastern Caribbean Securities Regulatory Commission (ECSRC) to draft the necessary changes to existing legislation, regulations and the associated rules to accommodate this new regime. The proposed program has already generated interest from companies such as First Caribbean International Bank Limited of Barbados and Grace Kennedy Company Limited of Jamaica. They are set to be the first foreign companies to list under this new program scheduled for an implementation date in November/December

4 Area IV Registry Services The Eastern Caribbean Central Securities Registry (ECCSR) has been working seamlessly to maintain and service security holder records for 46 securities. It has processed interest payments for government and corporate securities of approximately EC$10 million and maturity payments in excess of EC$50 million. It has processed over 15,000 investor notification letters to security holders of ECSE listed and non-listed securities throughout the OECS region and beyond. Over 60,000 semi-annual summary position statements have been processed to security holders recorded at the ECCSR since its establishment. The ECCSR has also processed other forms of corporate actions such as stock splits and Dividend Re-investment Plans (DRIP) transactions for its issuers. Finally, the ECCSR has successfully handled over 50,000 shareholder record updates due to name and address changes, joint ownership corrections, inheritance processing, trust creations, death of shareholders and probate related issues. Area V Intermediary Network During this financial year, the intermediary network was extended to six out of the eight member states of the currency union. Intermediaries generated over $422 million of buy interest in the primary market and executed secondary market transactions amounting to over $10 million during the year. There are eight ECSE certified intermediaries and the ECSE is currently reviewing applications from 2 more entities. It is our intent to seek intermediary presence throughout the Caribbean; and in the coming year we aim to certify member firms from Barbados, Jamaica and Trinidad and Tobago. The ECSE has already initiated discussions with several firms in these countries. Inclusion of foreign intermediaries, coupled with our foreign listings program, will allow the ECSE to expand the scope of its operations throughout the CARICOM region. An increase in intermediaries will bring more depth to the market as well as the infusion of the range of investment banking skills that are still in their infancy in our currency union. Area VI Operations and Technology The ECSE s open and electronic trading environment allows an unlimited number of participants to trade in an issuer s securities. The ECSE also offers a high level of transparency that helps investors gauge trends and make more informed decisions. Computerized trading screens lend themselves to open, efficient and nearly frictionless markets. Listed issuers have a committed interest in ensuring that their investors get the best execution. This means that lower execution cost and higher speed; efficiency and reliability are critical. Consequently, we are focused on maintaining the quality of our market with the right and best technology and structure for all investors. 4

5 This year saw the successful implementation of the IP/VPN arrangement for connectivity to our host computer systems. This is now operational throughout the region, and our intermediaries and issuers are enjoying the benefits of significantly reduced connectivity costs. In the year, the ECSE and its intermediaries will make further enhancements to the trade and post-trade processing systems. The Corporate Action Services will also be re-organised to enhance the scope of our shareholder records maintenance program. These enhancements and necessary operational changes are designed to be the drivers for extending the reach of our market. The ECSE and its subsidiaries continue to move towards full conformance to international standards. During this year, our systems and procedures were reviewed to assess their compliance with international standards. The ECSE and its subsidiaries are substantially compliant with these standards, and will be working diligently in the year to reach full compliance. Area VII Corporate Governance In 2003, the ECSE co-hosted the 1 st Caribbean-wide forum on corporate governance, which attracted over 100 participants from 16 countries. This historic forum accorded the opportunity for participants to assess developments worldwide and launch what would be the beginnings of a unified corporate governance movement in the Caribbean Basin. The ECSE has launched several initiatives with the region s Chambers of Commerce around the region to facilitate seminars on Corporate Governance and the changing requirements for public- and private- sectors in adhering to better governance practices. The ECSE is also serving as the joint co-ordinator of the Caribbean Corporate Governance Forum (CCGF) together with the Eastern Caribbean Central Bank (ECCB). ECSE s website continues to apprise people in the region on global and regional developments related to this topic. Area VIII Investor Education The ECSE s Investor Marketing, Education and Awareness (MEA) Programs are implemented in a strategic partnership with the regional media to apprise the public of the functions of our market. ECSE market activity is reported by prominent media-houses in the region and each Friday on the OECS NewsLink program which is being transmitted over nine (9) radio stations in the region. The ECSE has also finalized a relationship with Bloomberg News wherein Bloomberg carries end-of-day market information of ECSE trading activity on its worldwide terminals. The ECSE s web site ( continues to see increasing traffic by viewers. The web-site provides comprehensive information on our market structure, rules and procedures, daily/weekly trading activity and information on issuers and intermediaries. A new feature, Historical Data and Charts, added this year on the ECSE's home page, allows visitors to view the historical data for each listed security in a chart or tabular format. The ECSE management continues to make presentations to 5

6 shareholder groups, public company board members and company management across the region. Strategic alliances continue to be established with information service agencies, governments, intermediaries and financial institutions to collectively advance the notion of savings and investments in the region. OUR PRIORITIES GOING FORWARD The ECSE is committed to building on these successes, while focusing on enhancing the overall performance of the group. Accordingly, we are working to re-define what a regional securities market should be, and to demonstrate how well it can serve investors, issuers, and intermediaries in the CARICOM region. We are working to make the ECSE products and services that support this market, more competitive, profitable and responsive to customers needs. As an organisation, the ECSE is moving forward with a clear strategy to be the predominant market in the region, by: Further leveraging our primary market platform by attract and retaining the majority of initial public offerings by the region s governments and corporate issuers; Aggressively pursuing issuers in the region and those listed elsewhere to list on the ECSE; Capturing more trading volume regardless of the primary listing of the issuer; Enlarging our network by admitting to membership intermediaries from all recognized jurisdictions in the Caribbean; Achieving even greater levels of efficiency through ongoing operational improvements; Conforming to regulatory requirements and internationally recognized norms for securities markets ; and Championing the cause of corporate governance in the region. The ECSE has a clear mandate to secure its rightful place as the premier market of the region and to create the best example of an open, electronic market that supports choice, efficiency and fairness to all. CLOSING The ECSE and its subsidiary institutions (ECCSD and ECCSR) are well established. The primary and secondary market for securities is growing appreciably and the exchange is well on its way to offering its services to a large universe of issuers, intermediaries and investors within the CARICOM region. While we are pleased with our accomplishments to date, our company will remain a work-in progress, powered by the idea of popular capitalism an idea that holds that the best path to growth, opportunity and a better way of life is through an entrepreneurial, market-based system. 6

7 In pursuit of that idea and ideal, we will continue to strive for increased liquidity, openness and efficiency and doggedly pursue new ways to vitalize our market. We realize that to remain a viable market of choice, we must continue to seek new revenue sources, control costs and build value for our shareholders, while creating opportunity for our issuers and market participants. While we have a lot of work to do, we believe we re off to a good start. We are confident that as a company and as a securities market we have the talent, energy and resources to take ECSE into what promises to be an exciting new era in our region. We encourage the investors, the issuers, the intermediaries and the media to embrace the ECSE as we employ our technological resources to be the market of choice for the region. 7