Our Bahamas International Securities Exchange (BISX) recently launched its “new and improved, user friendly, website”. Just type www.bisxbahamas.com on your computer, and there it is ... unfortunately, a damp squib.
Don’t get me wrong. I am all in favour of an active capital market. Every country with a modern economy, even small ones like ours, can benefit from a buoyant stock exchange. We have achieved political democracy, but we are far from financial democracy. Every politician and pundit wants to see our national wealth spread more widely, by having equity shares held by more citizens than just those few at the top of the wealth pyramid.
I am sure that BISX chief executive, Keith Davies, and his team worked hard on the new website. Sometimes, however, hard work does not result in progress; just the opposite. Consider the history of BISX:
Created via a 95-page Private Placement Memorandum issued in September, 1999, it was intended to “play a critical role in the development of the Bahamian economy by efficiently channelling capital flows into creative, dynamic and industrious projects”. Not only that, it was to have international impact “as a major regional and global capital market player”. And, of course, BISX itself would be a profitable venture with “a stream of ever increasing revenues for the exchange itself”.
Enticed by this agenda, 45 individuals and financial firms invested a total of about $5 million initial capital and, by 2000, BISX was off and running with distinguished chairman Ian Fair heading a local Board of Directors, and a chief executive chosen from a London capital markets firm. Over 15 local companies that had been trading ‘over the counter’ soon shifted their shares to BISX, and ambitious efforts were made to snag international listings.
Unfortunately, these efforts were extravagant and, together with other ill-planned initiatives, within five years brought BISX to the edge of bankruptcy. That was only averted by a recapitalisation financed by the original shareholders plus a substantial infusion from Government, leaving the Treasury as the largest owner holding, to this date, over 40 per cent of BISX.
Bahamian Keith Davies was brought in as the new chief executive with a better defined mission. Despite his exertions, little progress has been made towards getting more companies’ ordinary capital listed. After the initial group in 2000-2001, only two companies have signed up - Commonwealth Brewery (CBB) in 2011 and Arawak Port Development (APD) in 2012 - and both of these public offerings were launched under compulsion from Government policy. Since then, the equities listed on BISX have been locked at just 20 companies.
So 16 years after its founding, BISX has negligible impact on our economy. In seeking to raise capital, companies do not consider a listing on BISX, and investors with spare funds rarely plan to buy listed shares. No estimate of the total shareholder community has ever been issued, while in the US about 55 per cent of the adult population participates in the stock market, and daily quotation of New York Stock Exchange (NYSE) securities is hot news.
The real problem of BISX is the feebleness of share trading and the resulting lack of liquidity. Many days, there is no trading whatsoever. None of the listed companies trade daily; several are active weekly, while a fair number are rarely seen in the market. Worse, it is scandalous that shares of major companies are frozen into thousands of ‘unfilled’ buy or sell orders reported on the BISX website. For months on end, shares of Cable Bahamas (CAB), CBB and Bahamas Property Fund (BPF) have been unmarketable because they are swamped exclusively by sell orders; by contrast, Freeport Oil (FCL), AML Foods (AML) and J S Johnson (JSJ) are rarely available because they are overwhelmed by buy orders.
If BISX is unable to provide the basic function of any stock exchange - active trading at varying prices - what is the reason for its existence? Do we need it?
I dispute the oft-repeated proposition that Bahamians do not understand tradeable investments and just buy and hold for their grandchildren. With a new breed of young people, getting constant information via the Internet, that idea can be buried in the past. Like investors everywhere in the modern world, they demand the ability to move in and out.
With our small population, we can never expect to enjoy the immediate liquidity of any share listed on the NYSE ... but surely we can do better than at present. For many years BISX displayed a stodgy and confusing website that was a turn-off for neophyte investors. The new model, just released, tries to offer an appealing soft sell but is actually a step backwards, rejecting much information vital for investment analysis.
Now, on top, we can enjoy a nice colour photograph of a lady and her daughter smiling on the beach over the superimposed word ‘Confidence’ and, later, a video of Mr Davies expounding his plans for the future - but what’s gone missing? We no longer find earnings per share, price/earnings ratio, or dividend yield. There seems no longer any way to jump from a company’s name to its historical financial statements or its latest annual report - and believe me, I tried. Many government and corporate bonds and preference shares are listed, but the one crucial item for investors, the percentage interest or dividend pay-out, cannot be found; call your broker, I guess, or look in the newspaper.
Even a better website, of course, will not solve BISX’s fundamental problem of low liquidity. One broker told me a change in BISX trading rules would help. On the NYSE, every listed company must appoint a Designated Market Maker (DMM), a securities dealer who commits his capital to buying or selling shares to smooth out pricing imbalances. That system would not work here, with only five dealers licensed by BISX. But all the dealers, plus large investors like pension funds and insurance companies, could contribute pooled equity to create one market-making venture. With the proper capital structure and experienced traders, it could be profitable by stepping in as middle man between buyer and seller, and would be providing a service to all shareholders.
Another step could be taken by Government to encourage companies to list: A concessionary period of three years when listing fees could be credited against Business Licence fees. Finally, following its exhortations about open ‘corporate governance’, BISX should open its own books to disclose whether it makes any money for its 45 shareholders.
Mr Davies has mentioned the recently announced relaxation of exchange controls as a potential source of new companies and new investors. The first step will be the Central Bank’s abandoning the archaic rule that every placement of securities by a Bahamian company must exclude any foreign investor, even for a minority stake. With a free flow of market information, there could be many investors from China or prosperous parts of Latin America with interest in publicly quoted Bahamian investments.
With its major stake in BISX, it’s surprising that the Government has not taken a more active supporting role. What’s needed is vigorous co-operation in a marketing campaign by BISX, Government, the broker/dealers and the pension fund and insurance company investors. Without that, we might as well close BISX in favour of the peaceful old days of over-the counter trading.
NB: • Richard Coulson is a retired lawyer and investment banker born in Nassau and from a long line of Bahamians. He is a financial consultant and author of A Corkscrew Life - adventures of a travelling financier.