At the theoretical level the scenario is pretty straightforward concerning the role stock markets are supposed to play in a market driven economy. The story goes something like this: savings are transformed into investment in an economy via financial intermediaries such as brokers, banks and stock exchanges.
As the process is envisaged, the main role of financial intermediation is the reduction of the cost and facilitation of the matching process of borrowers and lenders needs, in terms of accounts and time, and risk preferences. In terms of how they are supposed to work, financial intermediaries conduct a special type of analysis to run their business and satisfy their customer needs. This analysis encompasses market prediction, portfolio management, risk management, and financial product development.
We raise this issue to highlight the role The Bahamas International Stock Exchange was asked to play on the Bahamian scene, and to draw attention to its perfectly disastrous track record. From the date of its inception and uncertain establishment, BISX has caused any number of would be Bahamian investors no end of grief, as some of them were parted with their hard earned money.
As we revert to what BISX was supposed to achieve, we note that stock exchanges fulfill three basic functions: capital raising; offering trading services; and regulating both capital raising and trading markets. This it does through investment rules, companies listing requirements, exchange rules, and by monitoring members and companies compliance with rules, and resolving conflict of interest and rules violations.
There are any number of investors who have been ‘burned,’ who would advise that BISX has – to date – failed miserably on all counts. A part of the explanation for this sorry state of affairs is rooted in plain old ignorance. There are obviously any number of newly rich Bahamians who simply do not have what it takes to understand how these institutions work, and what they are supposed to do in order to protect themselves. Additionally, as the record attests, BISX itself was arguably not adequately staffed or resourced from the first instant of its conception, inception and establishment. If there was a blame game established, a number of highly placed and well paid BISX functionaries would be in for their fair share of the quiet for where BISX finds itself today.
From where we sit, our view of the matter is simple: There is no argument concerning the vital role a stock market and other financial intermediaries can play in facilitating investment in The Bahamas. The problem the attentive public has is that of determining whether a ‘reformed’ BISX will be any better than the old BISX. Put otherwise – and more pointedly – we insist that genuine reform of the Bahamian Stock Exchange must entail a public review of BISX’s history, challenges, achievements and setbacks.
Additionally, apart from the traditional fare of sweet and fast talk, the people who aspire to conduct the affairs of this institution, should be subjected to the closest scrutiny. All of this would be in aid of protecting the public, and defending the national interest. As a corollary, we would also argue that people who have lost money on BISX, should share their experiences with others wishing to become involved with BISX.
Now, none of this is to suggest that we are prejudiced vis-a-vis this initiative. Indeed, far from it. Believing as we do in the positive role a well regulated stock exchange can play in facilitating private sector expansion, we insist that it be put in the most competent hands.
In the longer term, we would also wish to have a situation developed where all financial intermediaries are subjected to greater scrutiny. This would include all commercial banks. And of necessity, it would also entail looking more closely into the affairs of any number of community level intermediaries. These would include the ubiquitous A-Sue institution, and other more insidious means of mediating capital flows.
In the ultimate analysis, then, everyone stands to gain when financial intermediaries are put on a firmer foundation. Absent such positive changes, would be investors will continue to be fleeced one way or the other.
Editor, The Bahama Journal
