Wednesday, October 10, 2018
By NEIL HARTNELL
Tribune Business Editor
The Bahamas International Securities Exchange (BISX) yesterday pledged to become "more proactive" in stimulating the market for specific stocks by expanding their trading "bands".
Keith Davies, pictured, BISX's chief executive, told Tribune Business that the exchange will now conduct monthly reviews to determine whether current restrictions - which limit limit daily movement in a listed stock to ten percent either side of the previous day's closing price - should be altered to encourage greater market activity.
His comments came after BISX yesterday confirmed it had expanded the trading bands, or "freeze parameters", for three listed securities - Arawak Port Development Company (APD), the Bahamas Property Fund and Benchmark Bahamas - in response to market conditions affecting each one.
Both APD and Benchmark Bahamas saw their trading bands expanded to 20 percent with effect from yesterday, while the Bahamas Property Fund's - already at 20 percent - was further increased to 30 percent.
Mr Davies emphasised that each move stood "on its own merits", and had only been taken after consultation with the companies themselves, plus key broker/dealers and other market participants.
Explaining the rationale for each, the BISX chief executive said: "For APD, we began to see there were a number of orders at the top of the [10 percent] band. There was buying pressure; not selling pressure. We've expanded it to give people the capacity to improve the market and the price if they so choose.
"With the Bahamas Property Fund, they were already at 20 percent and have been expanded to 30 percent. There's been a desire to stimulate activity generated by persons who may want to sell.
"In this instance, the move was stimulated more by inactivity. To try and generate interest, you open the band to see whether the market can move."
Turning to Benchmark (Bahamas), Mr Davies said the band was expanded to "facilitate trading and price discovery" in a company whose shares are currently valued at just $0.19 or 19 cents per share. Maintaining the "10 percent band", the BISX chief suggested, would deter trading as any improvement in the share price would effectively be capped at two cents.
"The price is very low, and if it was traded at that amount the movement would be very incremental at best," Mr Davies explained. "Any movement upwards would be 1.9 cents. In essence, because the price is so low, we want to give the security the ability to engage in reasonable price discovery. That was a response to facilitate price discovery and trading on a reasonable basis."
He added that "the status" of securities listed on BISX will determine future decisions on trading band expansions, which will be aided by analysis of the 20 years' worth of trading and price data now built up by the exchange.
"One of the things I want the exchange to become is a little more proactive in analysing the data," Mr Davies told Tribune Business. "Holland Grant [BISX's chief operating officer] has put in place a procedure to review, on a monthly basis going forward, market data and trends, analyse them and determine if we need to take any special action with respect to trading bands.
"I want to put in a programme that's more regular and engages the market, in addition to the brokers and the listed companies. Prior to these [band] expansions coming on stream we reached out to the companies. They provided us with feedback and comments, asked great questions, and were comfortable with the steps we proposed to take."
BISX's intentions are likely to be welcomed by a wide cross-section of Bahamian capital markets participants, some of whom have been highly critical of the 10 percent "trading band" and other regulations/structures they believe have contributed to an inefficient stock market.
Richard Coulson, The Tribune's columnist and a well-known, respected financial analyst, has long called for the 10 percent rule to be waived for illiquid stocks on the basis that its removal will remove an obstacle to investors to agreeing acceptable buying/selling prices.
Illiquidity, or lack of willingness by buyers and sellers to trade and interact, has plagued BISX and the wider Bahamian capital markets since the stock exchange's creation in 2000. Partly a function of the Bahamas' relatively small market size and exchange control regime, it also stems from the fact that most institutional investors tend to 'buy and hold' rather than engage in active trading.
The market's illiquidity also drove imposition of the '10 per cent' rule, which was intended to prevent wild fluctuations in stock prices caused by small retail investors exiting at values that did not reflect a company's fundamentals. Often, these trades involved just a few hundred shares, but caused "double digit" percentage declines in share prices well in excess of 10 percent.
Mr Davies told Tribune Business last November that BISX was in talks with its broker/dealer members and other market participants on how "trading band" restrictions should move in response to market conditions or a particular stock's circumstances, and yesterday's trio of "expansions" appears to be the first step in addressing these concerns.
The BISX chief executive, though, yesterday said the exchange's critics needed to bear in mind the constraints imposed by The Bahamas' population size and other fundamentals, including exchange controls.
"The one thing people need to appreciate is the nature of the market, the size of our market, the securities listed in the market, and people that are actively engaged in the market," Mr Davies added.
"Once you look at these realities you begin to understand the market, and how different it is from any other market in the world. We want the market to operate on its own, free of encumbrances, realising our goal is to allow buyer and seller to come together to make their own decisions.
"There needs to be a little more understanding of the way the market operates in The Bahamas," Mr Davies continued. "It is unfair and unrealistic to compare The Bahamas in the same breath as New York. The New York Stock Exchange is larger than the next 10 stock exchanges combined. You can't put The Bahamas in that conversation. That's not in the realm of sensible or reasonable.
"We are, nevertheless, a stock exchange and need to do things a stock exchange does, ensuring the market is transparent, operating fairly, and works for the benefit of investors."
Mr Davies also defended the "10 percent band", arguing that the "overwhelming majority" of listed stocks globally tended to trade within 2-3 percent of the previous day's closing price. He added that the BISX threshold was "not taken out of the air", but was based on historical data and market trends.
The Bahamas Property Fund, a mutual fund or real estate investment trust (REIT), owns three commercial properties