The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas International Securities Exchange’s (BISX) chief executive yesterday conceded that it needed to be “more proactive and ensure the market better reflects” prices that will stimulate trading activity.

Keith Davies explained to Tribune Business that last week’s expansion of Bank of the Bahamas’ ‘trading bandwidth’ to 54 per cent was intended to achieve this exact objective for a stock whose price has not moved for over two-and-a-half years.

He said the Bahamian capital markets already appeared to have “adjusted” to the move, as some 25 Bank of the Bahamas shares traded last week at a price of $2.41 per share - a major departure from the $5.22 they have been stuck at for months.

Other ‘sell’ orders, including one seeking to offload some 89,586 shares, have also been placed at the same $2.41 price since BISX expanded Bank of the Bahamas’ trading bandwidth beyond the standard 10 per cent.

Mr Davies told this newspaper that it was”not uncommon” to expand a BISX-listed stock’s ‘bandwidth’ beyond this percentage, describing it as a “standard operating procedure” throughout the exchange’s 15-year history.

He explained that such moves “depend on circumstances” surrounding a particular stock, even through BISX normally allows trading prices to only fluctuate by a maximum of 10 per cent either side of the previous day’s close.

This is designed to eliminate the price volatility produced by small retail sellers wanting to exit a stock at any price, but in Bank of the Bahamas’ case, BISX took the view that this was unduly restricting trading activity.

Mr Davies explained that in deciding whether to expand a stock’s ‘trading bandwidth’, BISX took into account factors such as trading activity “or the lack thereof”; the amount and nature of open ‘buy’ and ‘sell’ orders; and orders seeking prices “outside” the 10 per cent band.

Input from BISX’s broker/dealer members, investors and the companies themselves is also factored into any decision taken by the stock exchange to go beyond the ‘10 per cent’ restriction.

“This situation’s a little different,” Mr Davies said, referring to Bank of the Bahamas specifically. “First and foremost, people are focusing on Bank of the Bahamas for a variety of reasons. Anything we do is going to be enhanced or exacerbated because of that.

“This company has traded infrequently. Since November 2013, the price has not moved. There’s a huge build up, overhang in terms of sell orders, and the company is now engaging in some activity.”

Mr Davies acknowledged that the build-up of several hundred ‘sell’ orders, coupled with the complete absence of any buyers for Bank of the Bahamas’ stock, meant that the ‘10 per cent bandwidth’ restriction was inhibiting one of BISX’s key goals - to facilitate trading activity and price discovery.

“The goal of BISX is to facilitate price discovery, not maintain a particular price,” he told Tribune Business, “and ensure there is a meeting of minds between buyer and seller as to where they want to trade.

“We want to become more proactive, and ensure the market better reflects what buyers and sellers want to do. Right now, there’s an absence of buyers [for Bank of the Bahamas’ stock, different views as to what the price should be, and hopefully there will be better price discovery going forward.

“The issue from our standpoint is: Will this expansion of the band facilitate price discovery in the market?”

Mr Davies added that he could “see both sides of the coin” in relation to buyer and seller perspectives, but said there had already been “corrections” and “adjustments” to Bank of the Bahamas’ share price and activity surrounding the stock.

One of the major criticisms of BISX is that it is a relatively illiquid market, with too few buyers and sellers willing to engage in trading activity and, as a result, stock prices fail to reflect market sentiment and the company’s underlying fundamentals.

But, in BISX’s defence, this is a function of the Bahamas’ relatively small population size and investor base, as foreign investors cannot trade in domestic stocks. And many listed companies are controlled either by one large shareholder or a group of like-minded investors, meaning that the majority of their shares never trade.

Mr Davies, though, declined to directly address whether Bank of the Bahamas had been forced to amend the dates for its $40 million rights offering, which now launches today, because it was in non-compliance with BISX’s Rules.

The bank initially wanted to launch the offering on August 29 and close it yesterday, but its latest newspaper advertisements revealed this has changed. The $40 million issue will now launch today, and close on September 12.

Tribune Business sources have suggested that BISX required Bank of the Bahamas to change the offering’s schedule to ensure that all shareholders had access to the prospectus, after several complained they had yet to see all the information by the original August 29 launch date.

“We don’t comment on our internal discussions with companies,” Mr Davies responded, when questioned by Tribune Business. “All we do is ensure they’re in compliance with our Rules, and contact them and work with them.

“Once the company [Bank of the Bahamas] properly advised us, we worked to ensure they were in compliance with our Rules. They did so, and they are in compliance and moving ahead with their offering.”

Mr Davies conceded, though, that public companies listed on BISX need “to work on” meeting their information disclosure obligations.

“One of the things that companies will have to work on is ensuring they take certain steps to meet certain minimum requirements as it related to disclosure. As they get it under their belts and work it out, they will find they meet these requirements much easier.”

Mr Davies said it was standard procedure for BISX to discuss market developments, such as the Bank of the Bahamas rights issue, with the Securities Commission.

He added that BISX had also notified its broker/dealer members of the ‘bandwidth’ change involving Bank of the Bahamas, refuting suggestions that this had been done ‘quietly’.

Mr Davies explained that the exchange’s broker/dealer members were the correct persons to inform, given that all market participants traded through them.