Becki Patterson, Business Writer
Wentworth Graham - Photo by Becki Patterson
The Regulatory and Market and Oversight Division (RMOD) was created earlier this year when the exchange became a for-profit company. The RMOD answers to an independent body, the Regulatory and Market and Oversight Committee (RMOC). Wentworth Graham, who was placed in charge of the RMOD, explains the job of his unit.
What does the regulatory division track, and how?
The RMOD tracks activities that are related to the market: trading activities, companies' compliance to rules, brokers' operating standards and practices, and investor behaviour and concerns with the market.
In fulfilling these functions, the division utilises the JSE's electronic trading platform to assess trading activities, activity screening through customised tracking reports, on-site inspections, and examinations of stockbrokers' operations, analyses and tests of companies and stockbrokers' filings, scrutiny of press releases and publications, and the processing of complaints from the public and market participants.
How does the unit carry out its job on a day-to-day basis?
By explaining our objectives, one will better understand how we undertake routine functions, and these are: Conducting market surveillance to identify and avert market infractions; undertaking assessments and investigations to determine compliance with market rules; conducting inspections and examinations of member-firms' operations; developing rules to advance the operations of the market; and, providing support to the RMOC to adjudicate matters.
How large is the division, and what expertise resides within it?
The unit is a four-member team, with a skills set in economics, risk management, finance, governance, compliance, examination and market surveillance. The RMOC provides additional expertise in the areas of law, banking and Treasury operations.
The division has forged relation-ships with local, regional and international regulatory bodies that have advanced expertise in risk management, compliance, equities-market operations and market surveillance.
Does it lack expertise?
I respond by saying that the division must be in a constant mode of remaking and renewing itself with the requisite expertise and knowledge to address the require-ments of the stakeholders, the market and the JSE. In this regard, there is a programme to promote systems thinking, knowledge management and training and development locally, regionally and internationally.
What are the systems in place to ensure compliance with JSE rules?
The main principle is to expose the market practitioners to the rules. In this regard, the RMOD has a policy of undertaking rules orientation exercises with new market players, such as company secretaries and stockbrokers, to expose them to critical rules of the exchange. We also have a system of reminding market players of their responsibilities before a possible breach occurs; and there is the method of the pen.
How does the RMOD police insider trading?
The RMOC does not have the authority to adjudicate insider trading. While the RMOD may gather information relating to such allegations, the RMOC cannot take it to a mature stage. These matters are handled by the entity that regulates the JSE, the Financial Services Commission.
How big a problem is insider trading?
The perception or feeling about insider trading in Jamaica is no different from that of other developing markets in the region or the world. The fact is, markets like Jamaica, where shareholders' ownership is not dispersed, the number of listings are small, corporate governance is gradually growing or weak, there are grave concerns about information symmetry and agency problems. There will always be concerns about insider trading. The focus should, rather, be on addressing these problems, and then the cry would become softer.
What is the role of the JSE in overseeing mergers and acquisitions, example the Angostura/ Lascelles transaction?
The Angostura/Lascelles de-Mercado transaction was significant for the JSE and the economy. The transaction had to satisfy the standards of the market, as any other transaction that fits within the regulatory rubric of the JSE, such as the recent Savannah Carlton REIT, JSE's own preference issue, and the Pulse Investments' rights issue.
The exchange had to examine the market for infractions; all documents by the company to determine if they were in keeping with the standards of the market; all brokers, the company, shareholders and other regulatory bodies to ensure market transparency, fairness and conformance.
How does the JSE treat with new products, for example the Carlton Savannah REIT?
The RMOC has people highly trained and experienced in law, finance, accounting, risk manage-ment and the financial market operations markets. Equally, the RMOD is equipped with the requisite competencies and skill sets to support and respond to the development of the market. So, we all apply ourselves to make sure any kind of emerging new product fits within the context of the capital market and that it will advance the position of the JSE.
We also have linkages and support with North American and European practitioners, as well as support from local and regional experts in determining how to treat with new products, and in conjunction with local consultations, the JSE makes a determination of how to treat with new products.
What is the biggest problem/issue/challenge for the RMOD?
The question seems to focus on what is, rather than what is being done to address the challenges or issues.
The RMOD began its operations April 1, 2008. Its operations incorporate activities that were a work in progress prior to its formation. This puts one under the whip to complete these activities.
By the same token, one must be mindful of the principles and standards of the RMOC. That requires insight and in-depth analysis, which I personally find exciting and interesting.
The circumstance demands a sense of stayed focus and doing all that is necessary to fulfil the division's objectives.
I must add, the skills and the chemistry of the RMOC and the RMOD give me a sense that things are moving in the right direction and are being done to address the challenges.
Are the securities laws sufficient to properly regulate the market?
The nature and scope of our market is representative of the type of regulations and market perception that exist. It is just 10 years ago the JSE traded on a chalkboard and shares were physically held by all; 20 years ago the market traded three days per week, and our securities laws were not so advanced.
Twenty to 50 years from now, I can guarantee you that there will be growth in regulations due to calls from the market and a response by regulators. Therefore, it is a matter of understanding our situation given the stage of development, and an acceptance that appropriate responses will be undertaken in due course.
What needs to change?
The principle of regulatory dialectic speaks to actions by market players in response to existing regulations, and market regulators responding accordingly, which creates a continuous cycle in creating improved regulations and a better market. This means that changes are inevitable. Our market needs to provide conditions for continuous improvements in timely disclosure, good corporate governance and transparency. In that regard, that which is to be changed would be captured.
How has technology changed enhanced clearance, settlement, depository and risk-management services?
Generally speaking, there has been more efficiency, added revenue source, and transparency. Specifically, clearance - transfers are quicker and more secure; settlement - this has become shorter, more timely and certain; depository and risk-management services - certificates can be dematerialised, which addresses elements of operational risk at the exchange, and the stock brokerages.
Given the shorter and more timely settlement, the exposure to market risk is somewhat contained as there is the provision of liquidity to investors within a shorter time to provide for reinvestment in the market, or to support other economic activities.
Can the JSE have the same impact as the NYSE has had in the United States?
Fifty years ago, no one could have predicted that the NYSE would be as big as it is today. Its growth has been as a result of an association with the economy and culture. Over time, with the number of shareholders growing, more people understanding the stock market and more companies undertaking to list, I anticipate that there will be tremendous growth for the JSE.
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