Towards An Integrated Regional Stock Exchange System

1. Towards An Integrated Regional Stock Exchange System Regional Integration Operation Trading & Settlement System By Marlon Yarde, General Manager Barbados Stock Exchange Inc. Caribbean Connect: A High Level Symposium on the CSME June 28-30, 2006 mey

2. Content • Objective • Current reality • Definition • Charting the Way Forward • Experiences • Recommendation • Benefits • Hurdles to Overcome • Hurdles set Aside • The RIO Proposal mey

3. Objective A capital market that is: • Vibrant • Liquid • Transparent & fair • Efficient • Cost-effective • Well regulated • Predictable – consequences of actions are known Where all participants achieve their objectives mey

4. Objective Participants: • Issuers • Investors • Intermediaries Underlying factor – they all want to achieve their financial goals (wealth creation). mey

5. Objective Other participants: • Regulators • Central Banks • Stock Exchanges mey

6. Current Reality • 7 exchanges – Bahamas (19), Barbados (26), Eastern Caribbean (9), Guyana (0), Jamaica (42), Suriname (11) and Trinidad & Tobago (34). • Relatively high transaction cost. • Low liquidity. • Relatively small number of listed companies • A few securities dominate trading on an exchange. • Varying legislation and rules across the region • Cross-listing regime mey

7. Definition What do we mean by a single regional capital market: “Stock market integration means, to us, that investors can buy and sell shares in those markets without restriction and that identical securities can be issued and traded at the same price across the markets after foreign exchange adjustment.” Phillip A. Wellons – Integration of Stock Exchanges in Europe, Asia, Canada and the U.S. This is the essence of the regional capital market. mey

8. Charting the Way Forward mey

9. Experiences • European Capital Market • Inter-connected Stock Exchange of India Limited mey

10. Recommendation • CARICOM-wide connectivity using state-of-the-art technology connecting brokers (intermediaries); • multiple markets through single network connectivity; • a fair and well-informed market for financial securities; • an internationally competitive market. mey

11. Recommendation FOCUS Interconnected/integrated stock exchanges of the Region thereby creating a single capital market space for the Region. Consistent with the goals of CSME mey

12. Benefits • Encourage optimum financing for regional firms • Increase the attractiveness of the region as an area for investment – extra-regionally • Wealth creating opportunities for the people of the region – increased investment opportunities • No need for cross-listing • Facilitate the realization of part of CSME goal – of free movement of people, goods, services and capital - promote movement of capital across the region EDUCATION - Key success factor mey

13. Hurdles To Overcome • Regulatory Oversight/Co-operation • Harmonized Legislation • Harmonized Rules (Listing, Trade Days, Settlement Cycles, Settlement Currency, Reporting, Take-over code etc.) mey

14. Hurdles To Overcome • Dispute resolution • Business culture of debt vs. equity financing • Costs Technology & Telecommunications not an issue mey

15. Hurdles Set Aside Current technologies will enable brokers at each brokerage house across the region to access securities on the other exchanges. All brokers must first log on to their domiciled exchange in order to participate in the single regional capital market mey

16. RIO Proposal Two Phases: Phase 1 Integration of the trading and clearing settlement of the 3 markets – Barbados, Jamaica and Trinidad & Tobago. (Approx. cost USD $60,000 plus expenses – 3 months). Phase 2 The opening of the market to other regional exchanges and the international markets via a fixed gateway & international order desk. (Approx. cost USD $85,000 plus expenses – 4 to 5 months). mey

17. Proposal Elements NO Common Trading Platform Trades are executed in the country or exchange of issuance NO Central Depository or Clearing House Settlement is with the country of issuance NO Cross-Border Memberships mey 17

18. Proposal Elements NO Cross-Border Listings NO New Trading / Settlement Systems required NO broker or security selection issues mey 18

19. Linked Trading Systems Advantages National identity maintained Improved price discovery All orders meet all other orders Provides an international Best Bid /Offer mey 19

20. Linked Automated Trading Eastern Caribbean Dutch West Indies Barbados Jamaica Trinidad Cayman RIO Network Preserve your ability to set business direction. mey 20

21. Give Non-Residents and Foreigners Access to the RIO marketplace via Internet BrowseTerminal Foreign-based non-resident or otherInternational Trader RIO BrokersOrder Entry MarketData Internet RIO InternetPort OrderRouting Affirmations AutomatedTrading CH/Depository Foreign Broker Local Trader Foreign Trader RIO makes this Region an International Player. mey 21

22. Advantages to Linked Markets Local markets continue to exist in their present form Simplest alternative, easiest to implement All IT requirements are developed with current staffs Operating costs within current structure Moderate or minimal communications requirements Maintain existing trading and settlement systems mey 22

23. How it would operate RIO’s network would collect from each Participant exchange - their quotes, orders and trade execution data RIO’s network would disseminate this data to all Participants Brokers can trade on any Participating exchange from its own “country” exchange system and settle all trades in their home country mey 23

24. How it would operate (cont.) Each Participant exchange (and Depository) would link its systems to the RIO network Buyers and sellers would settle with their local Depository Each country would maintain its own trading and settlement rules and operational procedures mey 24

25. Market Data Dissemination In addition to each market sending its bid, offer and last sale data to RIO network, and The RIO system broadcasting this data back to all Participants, RIO’s network would deliver these data to Reuters et al on a real-time basis Each market would use these data to create a RIO Best Bid/Offer (BBO) display Full Reg NMS compliant mey 25

26. Trade Execution All trades would be executed by and on the trading system of the Exchange of Corporate Issuance (ECI) A broker wishing to trade on a participating ECI would have its order routed through the RIO network to the appropriate exchange The ECI would execute the order and would report the trade to the buying and selling brokers as well as the entire network mey 26

27. Clearing and Settlement The depositories would settle against each other via multi bi-lateral equal and opposite omnibus accounts All positions would be held in the depository of the country where the security is traded Trades would settle via book entry Each depository would guarantee its members’ trades A single settlement for all trades mey 27

28. Money Settlement Money Settlement can be via a common (US$, etc.) or local currency mey 28

29. Every Settlement Debits and Credits in total of all settlement accounts will be equal A single net Pay /Collect will exist with each participating depository for money settlement mey 29

30. Every Settlement FX transaction required for (net) settlement Only one daily FX transaction, single (e.g. US$) or local currency, initiated by (bank of) paying Depository, for each country mey 30

31. Money Settlement illustration Each account would be equal and opposite with the participating depository Example (in local currency)- Jamaica is a net buyer of Trinidadian securities: Settlement In Trinidad Jamaica Depository Acct: 2.1 mil. USD DEBIT In Jamaica Trinidad Depository Acct: 2.1 mil. USD CREDIT mey 31

32. Build a Superior Market Data System Real-Time Trade & Quote information Protect data via an error-correcting Protocol Continuously refresh trade & quote data Corporate Action Announcements News pertaining to country / corporate information Research Reports (as a service to brokers) This can be a significant income generating activity. mey 32

33. RIO Steering Committee Composition of Committee Determine Rules and Resolve Issues such as: Criteria and Decision (and Removing) for Adding Participants Distribution of additional fees and other income (see proposal) Rules for individual exchange “system down” Revenue sharing Frequency of registered ownership mey 33

34. Conclusion Chairman of The Securities & Exchange Board of India, Mr. G.N. Bajpai, in his address to the South Asian Assoc. For Regional Co-Operation stated: “It is not only the beaming blessings but definite & determined decisions that will fructify the dream. National priorities naturally take precedence over regional resolutions. Fortunately, the current environment and understandings are relaying very positive signals.” August 29, 2004. mey

35. Contact Information Marlon Yarde – General Manager Barbados Stock Exchange Inc. 1st Floor Carlisle House Hincks Street, Bridgetown Barbados. marlon.yarde@bse.com.bb Telephone: (246) 436-9871/2 Fax: (246) 429-8942 Website: www.bse.com.bb mey