The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas International Securities Exchange’s (BISX) chief executive yesterday hailed its listing of $3bn in government debt securities as “a day I never doubted would come”.

Keith Davies, speaking after the exchange announced a successful end to its 20-year effort to persuade the government to list its bonds, told Tribune Business the move represented “one of the biggest steps we’ve taken” in BISX’s history.

Arguing that it “speaks volumes to BISX’s growth and development”, Mr Davies said the listing of more than 200 Bahamas Government Registered Stock (BGRS) issues will bring the “transparency” of a formalised market to the largest security in this nation’s capital markets.

He explained that the BISX listing will provide investors with real time information on the breadth and depth of the government securities market, plus the pricing of different issues, thereby enabling them to make “better informed” investment decisions.

There will also be spin-off benefits for the wider debt market, Mr Davies explained, as companies would be able to use investors’ risk appetite for government debt as a “benchmark” for pricing their own corporate debt issues thus leading to the development of a Bahamian Yield Curve.

Although the government’s bonds will be listed on BISX this month, it was revealed yesterday that their active trading via the exchange will only start in November 2019. Mr Davies explained that the delay was intended to ensure the clearing and settlement process for BGRS trade was functioning properly so there was no disruption to the market.

The Government’s completion of the BISX listing process marks the end of a two-decade effort to entice the multi-billion dollar BGRS market on to the exchange. Its failure to accomplish this when it launched in 2000, having ramped up its staff and cost base in anticipation it would happen, plunged the exchange into a financial crisis that ultimately led to a bail-out by the Government and some of its shareholders.

With those bleak days now behind BISX, Mr Davies told Tribune Business of the BGRS listing: “I never doubted that this day would come, never. This was purely a matter of time. I knew there had to be a day - I was not sure what would activate the tipping point - but, knowing this was the sensible and right move for the government securities market, I knew it would happen.

“Listing on the exchange speaks to the level of trust placed in BISX. The mere fact we’re being entrusted as the single location for the listing, trading and buying of government speaks volumes to the exchange’s capacity to manage the market properly.”

The addition of more than $3bn worth of government bonds, split into over 200 tranches or issues, will increase the total value of debt listed on BISX more than six-fold compared to the $513m present at the end of the 2019 first quarter.

Adding in $4.853bn worth of listed equities, the arrival of the BGRS issues will increase the total value of all BISX-listed securities by 55.9 percent to $8.366bn. This highlights the extent to which their addition broadens and deepens the Bahamian market, giving investors extra securities options.

“It’s a tremendous day, a watershed event, and something we should all be proud of,” Mr Davies said. “It is perhaps one of the biggest steps we’ve taken in the history of the exchange as it relates to our intent and purpose, and also for the general organisation and development of the capital markets.

“It’s one of those watershed events in the history of any company, and speaks volumes to our growth and development. Now the work begins. We need to let the market pick it up, run with it, evolve and let it grow. Let’s build up that history that establishes markets, and we will see positive developments in the future.”

Explaining the time-lag between listing and the start of trading, currently set for November 2019, Mr Davies explained: “It was to make sure that when we put 200 tranches in the market that we have all the data information flows and transaction settlement taking place seamlessly.”

He added that trading would be linked to the Government’s BGRS securities depository via a “straight through processing” set up, and said: “Putting all that together is vitally important. We’ve been doing it. We’ve done a number of things, including transactions on the system to ensure it’s working the way it should.

“We just want to make sure everything is working right. This is not a sprint, it’s a marathon, and we’re going to get it right.”

Placing government debt and the market for its secondary trading on a formalised stock exchange will bring The Bahamas into line with what happens elsewhere in the world. Until now, trading in government debt following its initial issue has been facilitated by the Central Bank via an over-the-counter type arrangement.

While acknowledging that this had worked “safely and properly”, Mr Davies said the BISX listing would offer the government debt market additional features that will benefit all parties involved.

“The first thing is transparency,” he told Tribune Business. “You know what is going on in the market, having a location where you can come to see what the depth of the market is and what’s available, which is vital to making informed decisions.

“You don’t have to guess any more; you can see the pricing and make a decision more confidently. That’s important for investors, speculators and corporate debt issuers. It allows them to benchmark and see what the state of the market is today. Transparency is one of the key benefits investors and the market should expect to see.”

Mr Davies added that the information and data made accessible by BISX will help investors to better analyse the risk involved with any BGRS issue. He suggested this would help open up secondary trading in government debt to retail investors, as they would no longer have to “dig” for information and not receive any answers.

“The Central Bank does not know the depth of the market,” the BISX chief executive explained. “You would go to the window and they could only tell you what they were holding.

“It’s all about transparency, being able to understand the depth of orders, indicators of risk and price discovery. These are key features that formal markets bring to bear. Confidence in pricing and the single point where transactions take place. It’s also the broadest and deepest security in the marketplace. All these things add up to a very beneficial environment for securities to exist in.”

With government-issued debt typically viewed as “the least risky of any securities in the marketplace”, Mr Davies said Bahamian corporate debt issuers will able to use investor appetite for BGRS issues to gauge demand for their own offerings and price them accordingly.

“The listing and trading of fixed and floating rate government securities within our formalised electronic market environment allows for the establishment of a Bahamian Yield Curve,” he explained. “This will allow, over time, for the further expansion and development of the corporate and institutional debt markets in The Bahamas.

“The secondary trading of these instruments will also provide investors with valuable real time information regarding the risk appetite of the Bahamian capital markets that will assist investors when pricing and factoring risk for other issues.”

Mr Davies praised the role played by both Andrew Strachan, BISX’s chairman, and his immediate predecessor, Ian Fair, in bringing the listing and trading of government debt on BISX to fruition.