IFRS AND THE REGIONAL STOCK EXCHANGES OF THE CARIBBEAN

1. Thursday 16th Nov. 2005 Caribbean Association of Indigenous Bankers 33rd Annual Conference Hilton Conference Centre Port-Of-Spain, Trinidad & Tobago W.I. IFRS AND THE REGIONAL STOCK EXCHANGES OF THE CARIBBEAN Leo A. Williams Deputy Chairman Director Jamaica Stock Exchange JMMB Securities Ltd. (Stockbrokerage firm)

2. INTERESTING CASES EMERGE WHEN WE FIRST IMPORT TO THE REGION “ 'Difficulty' is the excuse history never accepts." - Edward R. Murrow (1908-1965) American broadcast journalist ST THOMAS, Barbados (AP) - Everyone knows it's a boy. But what is it? A zonkey? A deebra? That's the debate buzzing in Barbados since a zebra gave birth to a foal sired by a donkey. www.jamaicaobserver.com Friday, April 29, 2005

3. DISCLOSURE ADVOCATES IN ANY SOCIETY REFLECT DIFFERING INTERESTSDeveloping Markets Need Higher Activity Levels For Public Visibility Advocates High activity levels Low public visibility Tax Reporting Authority profits profits assets Accounting Authority Regulators assets risks profits Media profits assets risks governance Private sector profits future profits assets risks governance High public visibility Low activity levels Disclaimer: This diagram is for illustrative purposes only. Not intended as assessment.

4. IMPROVED CARIBBEAN DISCLOSURE AND STANDARDS REGIME DEVELOPS OUR MARKETS Federal Financial Accounting Standards: “Disclosure” means “reporting information in notes or narrative regarded as an integral part of the basic financial statements.” IOSCO: Toward the development of a generally accepted body ofnon-financial statement disclosure standards • Objectives: • Good governance, • Efficient financial intermediation, and • Sustainable growth. Facilitate cross border offerings and listings by multinational issuers by enhancing comparability of information, while ensuring a high level of investor protection. The importance of sound, uniform, and transparent financial disclosure standards to provide comprehensive information about transactions and institutions undertaking them. Asian Development Bank Project Name Enhancing Financial Disclosure Standards in Transitional Economies: http://www.adb.org/Documents/ADBBO/CSRN/RETA/36247022.ASP

5. IFRS DICTATES CLEAR STANDARDS FOR PORTFOLIO VALUATIONS IFRS foresees rare circumstances where compliance with a particular Standard may not result in fair presentation. In such cases, entities may choose to depart from the relevant standard. Entities are discouraged from invoking this override of IFRS. The disclosure requirements when doing so are voluminous. The entity should disclose: the standard departed from; the nature of and reason for each departure; and the financial impact of each departure on the net profit or loss, assets, liabilities, equity and cash flows [IAS1R.17-22]. Active market - quoted market price: The existence of published price quotations in an active market is the best evidence of fair value and, when they are available, they must be used to measure fair value . The phrase "quoted in an active market" means that quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency. Those prices represent actual and regularly occurring market transactions on an arm's length basis. The price can be taken from the most favourable market readily available to the entity even if that was not the market in which a transaction would occur [IAS39R.AG71]. The quoted market price cannot be adjusted for "blockage" or "liquidity" factors. The fair value of a portfolio of financial instruments is the product of the number of units of each instrument and its quoted market prices. The appropriate quoted market price for an asset held or a liability to be issued is the current bid price and for an asset to be acquired or liability held, is the asking price. When an entity has assets and liabilities with offsetting risk positions, it may use mid-market prices and apply the bid or asking price to the net open position as appropriate. When current bid prices are unavailable, the price of the most recent transaction provides evidence of the current fair value [IAS39R.AG72]. http://www.pwc.com/Extweb/service.nsf/docid/A01FA5E222E7060880257126003DB26D

6. RECENT JSE LISTINGS ARE REGIONAL COsMarket Cap of $5.3 B USD of $14B as at 2004 DYOL CBNY RJR CSTE BER DBG JB All have been cross listed Between JSE and TTSE PUL NCB2 CIBWI CALFI FRIEN WIPP FLIFE SVL KW MIDA CITIZ TCL GHL RBTT JMMB CCMB MVL 1991 2003 2004 2005 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Source: JMMB Securities Ltd. Analysis, Oct 2006 www.jmmbsecurities.com

7. CROSS LISTED STOCKS MAKE UP A SIGNIFICANT NUMBER OF THE LOCALLY QUOTED SHARES Trinidad Barbados www.jmmbsecurities.com

8. CROSS MARKET ARBITRAGE CLOSES GAPSLeads To Increasingly Better Price Discovery

9. PRICING OF THE ASSET MAY GET MORE INVOLVED AS CROSS LISTINGS GROW The price can be taken from the most favourable market readily available to the entity even if that was not the market in which a transaction would occur. [IAS39R.AG71].

10. STOCK EXCHANGE PRICING MECHANISM ALLOWS FOR 3 DAILY REFERENCE PRICES Prices likely to open down Hard to tell which way prices will go Prices likely to open up The appropriate quoted market price for an asset held or a liability to be issued is the current bid price

11. INFORMATION AVAILABILITY IN MARKETS CLOSES THE GAP BETWEEN BID AND ASK Efficiently Priced Security Inefficiently Priced Security High price High price Offers or Asks Offers or Asks Large Spreads = Poor info availability Small Spreads = adequate disclosure Bids Bids Low price Low price

12. ON THE BSE, INFORMATION ASYMMETRIES REVEAL A NEED FOR MORE DISCLOSURE Electronic Trading With Controls On Bids and Offers Spreads No Bids and No Offers No Bids or No Offers Source: www.jamstockex.com and JMMB Analysis as at 2nd Nov. 2005

13. ON THE TTSE, INFORMATION ASYMMETRIES REVEAL A NEED FOR MORE DISCLOSURE Electronic Trading Executed With Controls On Bids and Offers Spreads No Bids and No Offers No Bids or No Offers Source: www.jamstockex.com and JMMB Analysis as at Nov. 2nd 2005

14. ON THE JSE, INFORMATION ASYMMETRIES REVEAL A NEED FOR MORE DISCLOSURE Electronic Trading With No Controls On Bids Or Offers Spreads No Bids or No Offers No cases of No Bids and No Offers Source: www.jamstockex.com and JMMB Analysis as at 2nd Nov. 2005

15. PRE-EXISTING TRADING AND CIRCUIT BREAKER RULES NOW INTERFERE WITH IFRS RULES Bid / Ask Limit Daily max price is 1.15x higher of ask or last sale Any bid or ask accepted Daily min price is 0.85x lower of bid or last sale JSE Daily max price is 1.1x last sale bid or ask only accepted if <= +-10% of last sale Daily min price is 0.9x last sale TTSE bid or ask only accepted if <= +-10% of last sale Daily max price is 1.1x last sale Daily min price is 0.9x last sale BSE The appropriate quoted market price for an asset held or a liability to be issued is the current bid price

16. DISCLOSURE FACILITATES BETTER OPERATIONS IN FINANCIAL MARKETS …the implementation of internationally accepted economic, financial, and statistical standards would help to strengthen domestic financial systems by encouraging sound regulation and supervision, greater market discipline, and more efficient and robust institutions, markets, and infrastructure. They further asserted that standards would promote international financial stability by facilitating better-informed lending and investment decisions, improving market integrity, and reducing the risks of financial distress and contagion.2 • Disclosure Standards and Market Efficiency: • Evidence from Analysts' Forecasts • Hui Tong, Nov. 16th 2004 Source: http://cep.lse.ac.uk/seminarpapers/24-11-04-TON.pdf

17. IFRS BRINGING WELCOME CHANGES AND SOME CHALLENGES TO THE MARKETS New financial reporting standards, especially International Financial Reporting Standards (IFRS), have extended disclosure requirements. IFRS are complex and require interpretations to arrive at their practical applications… The implementation of, and amendments to, reporting under IFRS increased the cost of reporting by entities. The proposal that no new standard be issued with an effective date before December 31, 2009 is welcome news. This should provide reporting entities with a stable period when there should be very few changes in reporting financial information. Raphael Gordon managing partner of KPMG in Jamaica and chairman of KPMG CARICOM. Jamaica Gleaner - 9 November 2006 1 Raphael Gordon is the managing partner of KPMG in Jamaica and chairman of KPMG CARICOM.

18. ASSESSMENT OF TRANSPARENCY IN DIFFERENT CARIBBEAN EQUITIES MARKETS BSE TTSE JSE Comments Tax Reporting Authority Clear laws and obligations, adequate filing frequency and disclosures, IFRS accepted by accounting boards, adherence good/improving Accounting Authority Oversight and supervision strong, regular audits, visibility into operational affairs good Regulators Media Analysis on listed companies few, governance reviews limited, murky macroeconomic policies BSE, x of 11 brokers; TTSE, 2-3 of 6 brokers; JSE,3-5 of 11 brokers providing analysis on listed companies regularly Private sector • Media and private sector scrutiny and analyses are generally inadequate. • Investors have little immediate or very poor “timely” visibility into corporate affairs and • Frequently local access to information deemed “public” in developed markets is not available, • Due to weak or thin capital markets, listed companies have little incentives to disclose key info.

19. CONCLUSIONS Regional stock exchanges need to do more to foster “current” bid and ask prices Greater application will likely occur for IFRS provision for “obtaining fair market value prices from the most favourable market readily available to the entity even if that was not the market in which a transaction would occur [IAS39R.AG71]”. Establish mutual recognition provisions across Caribbean jurisdictions. The difference between “bid” prices and “last sale” prices can have significant impacts on portfolio valuations at month end and to differing extents across the region Need exists for more harmonization of timelines and policies for reporting across exchanges and trading rules Local accounting bodies need more interaction with regional stock exchange rules

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