The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamian capital markets will take "a giant step forward" in mid-January 2019 when BISX's 20-year wait to list and trade government debt finally ends.

Keith Davies, pictured right, the Bahamas International Securities Exchange's (BISX) chief executive, told Tribune Business that the exchange had come "full circle" now that the near two-decade effort to persuade the Government to list its bonds is about to bear fruit.

The Central Bank of The Bahamas, unveiling the new structure aimed at creating "a more efficient and vibrant" market for Government debt securities, confirmed yesterday that all existing and future Bahamas Government Registered Stock (BGRS) and Bahamas Government Stock (BGS) issues will be listed on BISX from January 15, 2019.

The move is exactly what BISX had been hoping for when it launched operations in May 2000, amid expectations that the listing and trading of government debt issues would give it an immediate market that was both broad and deep.

This never happened and, with BISX having ramped up its costs and structure in anticipation, led directly to the Government-led "bail out" - through the Central Bank - some three to four years later that was essential to rescuing the exchange and ensuring its survival.

"BISX is going to be the market where government paper is listed and traded," Mr Davies confirmed to Tribune Business following the Central Bank's announcement. "After 20 years of working on this, BISX will become where government securities are listed and traded in a transparent manner.

"It is a welcome and needed step. Any time you can begin formalising a significant part of your market it's a significant boost for everyone, including BISX. We will be listing all the current issues paper that's out there, and taking those on to the exchange, and all new issues will be listed and traded on the exchange."

Government debt securities form the largest component of the Bahamian capital markets in terms of both value and number of issues. Both indicators have increased significantly since 2000 as a result of the multi-million, nine-figure annual deficits racked up by successive administrations, and the need to finance them with debt issues.

As a result, the collective value of the securities set to be listed on BISX is likely to at least be in the $3bn to $4bn range, even though shorter-term Treasury Bills are not included.

Recalling the struggle to attract government debt securities to the exchange, Mr Davies said yesterday: "To be very clear, BISX was started with this. This was the intent and purpose of BISX. From day one. I was there. I remember.

"It never materialised. We've come full circle. People will never know how much this has been in the works. Every governor since we started, from Julian Francis, has been involved in making this happen, including the current governor.

"This has been an ongoing collaborative effort and something worked very hard on behind the scenes to make it happen, and it's finally come to reality. It's a good thing for the market and, in time, everyone will benefit from the advancements we bring to the market."

To pave the way for the BISX listings, the Central Bank will create the Bahamas Government Securities Depository (BGSD) on November 26, 2018. This facility will act as the "registrar and transfer agent" for government debt, maintaining the lists of who holds it and ensuring the timely clearance and settlement of any securities trades.

"The BGSD will serve as the primary register and settlement system for Government and Government agency securities," the Central Bank said. "By helping to expedite the buying and selling processes for Government securities, this modern electronic platform will ultimately pave the way for a more efficient and vibrant debt securities market."

It added that the BGSD, which will have a role similar to the Bahamas Central Securities Depository (BCSD) that serves listed public companies and their shareholders, will ultimately replace the current paper certificates that prove ownership of government debt securities with electronic records.

"This means that lost or damaged certificates will no longer create a delay in processing; principal payments at maturity will no longer require the surrender of paper certificates to the Central Bank; and bond redemptions over the Central Bank counter will only require the owner to present two forms of Government-issued identification, one of which must be the National Insurance Smart Card," the Central Bank added.

Investors will now have two routes for acquiring government debt - at the time it is issued, or via the "secondary market" that will be created by its listing and trading on BISX.

Detailing the advantages for investors and the wider capital markets, Mr Davies told Tribune Business: "All the elements of an exchange are brought to bear. You have information, transparency in terms of what's happening in the market and, more importantly, have a place where buyers and sellers can go to list and trade securities.

"You don't have to guess what's available. It will be presented in a very transparent fashion, and all persons will have an element of price discovery that didn't exist before the listing on BISX, and which is vital to the development of the marketplace. It's a giant step forward. It validates everything we were trying to do and puts us in a position to do even more."

Mr Davies promised that BISX would not become complacent after finally securing the long-term government paper market, saying: "Just because we're listing government paper doesn't mean we can pat ourselves on the back. It's on to the next thing.

"We need to improve our system, improve communications, and assist the Central Bank in its mandate. We need to assist that in whatever way we can to modernise the process, and help the Government with its planning and issuance scheduling.

"As time goes by we will bring to bear additional efforts in the marketplace that improve the processes people see now, as we move forward into next year and bring all these things to the fore."

The Central Bank said the BISX listing was intended to "promote more efficient market trading and better pricing of the bonds through market bidding".

It added: "The Central Bank is committed to the development of the Government securities market in accordance with international good practices. It is the Bank's vision that the further development of the market will inform investors on the benefits offered by investing in sovereign Bahamian debt.

"Over time, the Central Bank and the Ministry of Finance will increase reliance on market-driven outcomes in the Government bond arena. This means that investors will notice reduced access to services provided directly through the Central Bank counter and an increased reliance on services through the securities exchange and the private broker/dealers."