Caribbean securities exchanges have existed since the 1969 creation of the Jamaican Stock Exchange; in the last 15 years those exchanges have increased in number and significance. From the creation of the Bermuda Stock Exchange in 1971 to the creation of the Trinidad & Tobago Stock Exchange in 1981, no new exchanges with staying power were added. Beginning with the Barbados Stock Exchange in 1987 and followed by the Bolsa de Valores de la Republica Dominicana in 1991, the Cayman Islands Stock Exchange in 1997, the Bahamas International Securities Exchange and the International Finance Center and Exchange in 1999, and the Eastern Caribbean Securities Exchange in 2001, the region’s financial infrastructure expanded.
Moreover, there are indications that the growth of Caribbean securities exchanges has not yet ended. Multiple exchanges are in the development stage, including the Haitian Stock Exchange, with no immediate plans to open, and the Dutch Caribbean Stock Exchange, which was authorised to begin operations in Q1 2010 but apparently has not yet done so.
A key factor in the expansion of Caribbean stock exchanges was the recognition of two offshore exchanges by the United Kingdom’s government. Her Majesty’s Revenue and Customs has designated both BISX and CSX as “recognised stock exchanges” under section 1005(1)(b) of the Income Tax Act of 2007, and recognised all securities on these exchanges as “listed on a registered stock exchange” for the purpose of tax legislation, an important designation under UK law for four reasons.
First, UK pension schemes are permitted to hold securities listed on these exchanges, giving companies and funds listed on such an exchange access to a larger market of sophisticated, well-capitalised investors. Second, debt securities satisfying the Eurobond exemption on these exchanges are not required to withhold tax from distributions to parties in the UK. Third, securities listed on these exchanges may be held in tax-advantaged individual savings accounts and personal equity plans. Fourth, there is some inheritance tax advantage to holding securities listed on recognised stock exchanges.
Even where onshore jurisdictions do not directly recognise an offshore exchange, there may still be some benefit to listing on such an exchange. Some studies have found that firms seek to maximise their visibility in markets while minimising disclosure costs.
Because regulation in some Caribbean jurisdictions is less focused on protecting individual retail investors than minimising systemic risk, and thus has lower disclosure requirements, listing on a Caribbean exchange may increase visibility with respect to the institutional investors with a presence there at a low disclosure cost. Further, individual onshore stock exchanges may be willing to recognise offshore exchanges. For example, prior to CSX’s recognition as a recognised stock exchange by HMRC, the London Stock Exchange granted CSX approved organisation status, enabling securities listed on the CSX to become eligible for quotation on the SEAQ (Stock Exchange Automatic Quotation) international trading system and eligible for trading in the LSE’s international equity market.
Caribbean securities exchanges offer exciting opportunities, both for the jurisdictions housing these exchanges and for businesses seeking capital or selling investment products. The exchanges themselves face a choice between at least two potential paths. First, the presence of sophisticated investors gives these exchanges an opportunity to capitalise on their varied business associations offerings by catering to domestic firms or their financial products. By remaining primarily a vehicle for SPVs not featured on onshore exchanges, Caribbean exchanges can capitalise on their competitive advantage in this area. On the other hand, the CSX offers a different possible future. Exchanges can regulate in ways that inspire the confidence of onshore exchanges, which then expand access to markets by cross-listing and offering tax advantages to those investing in these ‘legitimised’ offshore securities. The latter option will dramatically expand the marketability of products, but may trade off with the lighter regulation and low disclosure costs that made investing offshore advantageous in the first place.
Caribbean exchanges will also have to decide how to interact with each other. As more and more of these exchanges spring up, it will be interesting to see whether the various exchanges in the region find it more beneficial to consolidate to reduce transaction costs or remain separate to offer regulatory competition within the region. There is some indication that the exchanges are trending in the direction of consolidation and cooperation, such as the cross-listing arrangements among the CARICOM countries choosing to participate and the establishment of the multi-national Eastern Caribbean Securities Exchange. On the other hand, there is a proliferation of exchanges, each advertising their own comparative advantages. For example, the nascent DCSE advertises its choice of law provision (Netherlands Antilles – a Dutch civil law system) as a unique advantage. More generally, the historical differences among the islands of the Caribbean may make reconciliation and consolidation practically and politically difficult to accomplish.
Jamaica Stock Exchange (JSE)
Bank of Jamaica Act (1960), Banking
Bermuda Stock Exchange (BSX)
Bermuda (United Kingdom)
Trinidad and Tobago Stock Exchange
Trinidad & Tobago
Securities Industry Act 1981;
Barbados Stock Exchange Inc (BSE
Securities Exchange Act, Cap 318A,
Bolsa de Valores de la República
Law 19-00 (Securities Markets Law);
Cayman Islands Stock Exchange (CSX)
The Cayman Islands Stock Exchange
Bahamas International Securities
Securities Industry Act 1999
International Finance Center and
Netherlands Antilles Ordinance on
Eastern Caribbean Securities
Anguilla, Antigua and Barbuda,
Model Act: Securities Act of 2001