BASSETERRE St. Kitts – RECENTLY part I of ‘Understanding Stocks’ was published with the promise of presenting additional information in a follow-up article, so as promised, SKNVibes presents ‘Understanding Stocks Part II’.
SKNVibes sat down with the General Manager of the Eastern Caribbean Securities Exchange (ECSE), Trevor Blake, and discussed some frequently asked questions about stocks as well as the ECSE.
Once again we share with you the answers to some of the questions asked:
What are bonds?
Bonds are like a loan being made to a company or government. It is also called a debt security. A company or a government would issue debt and the investor would buy that debt which is providing a loan to the company or government.
When investors buy bonds, what they are doing is lending the company or the government the money invested and for that, they will be paying the investor an interest over time, typically every six months. At the end of the period for which the bond was issued (each bond has a term for which it runs), the investor would get back the money that was invested.
What are the benefits in owning bonds?
An investor who buys corporate or Government bonds receive interest payments periodically as well as the repayment of the original amount loaned (the principle) at a specific date in the future.
Even if the company does poorly, it is still obligated to pay interest to its bondholders. Companies and government rarely default on bond payments, making this form of investment considerably safer than others.
What are the risks in owning bonds?
The interest on a bond is fixed when purchased. Therefore, this investment may not offer the high returns that stocks do. Another risk is that the issuer may run into financial difficulty and be unable to meet its obligations to make interest payments and/or repay the principle to the bondholder.
What makes the price of stocks and bonds fluctuate?
Several factors affect the price of securities:
• A company’s health and performance
• The public’s perception of the company
• The political and economic environment
• Supply and demand for the stocks and bonds
What is insider trading?
Any information about a company that is not pubic is inside information. Insider trading is where someone who has inside information about a company and uses it for their own benefit.
Example: If Jane knows that the Electricity Company has a new source of generating electricity that is going to reduce the cost by 50 percent, that would mean that this company will be earning a lot more profit. If that information is used by Jane to buy shares in Electricity Company before it becomes available to the general public, then Jane is guilty of insider trading.
What is the ECSE?
The Eastern Caribbean Securities Exchange is a regional securities market, established by the Eastern Caribbean Central Bank and licensed under the Securities Act, uniform regional legislation governing securities market activities.
The ECSE is designed to facilitate the buying and selling of financial products, including corporate stocks and bonds and government securities, for the eight ECCB member territories of Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines. It is the first regional securities market in the Western Hemisphere.
What is a securities market?
A securities market is like any other market where buyers and sellers meet to exchange goods and services. The buyers (investors) are individuals and institutions who have money (capital) to invest. The sellers are corporations, governments and other investors.
The products they sell are securities, including stocks, bonds and other financial products, which are exchanged for money.
Why an ECSE?
The ECSE provides investors a new way to make money on their investments and participate in the expansion of local enterprises at the same time.
It offers an opportunity for investing in and profiting from the growth and development of the economy of the Eastern Caribbean.
How are securities traded on the ECSE?
The ECSE provides a primary and a secondary market for trading securities. In the primary market, a public company or government (issuer) sells its securities for the first time to investors to raise capital to support its operations. The funds generated from this sale of securities go to the issuer.
In the secondary market, investors buy and sell securities among themselves. The proceeds from this trading activity go to the investors, not back to the original issuer.
What is dematerialization and why does an investor need to know about it?
Shares of all companies listed on the ECSE will be held in dematerialized form. This means that investors will no longer need to hold certificates to confirm proof of ownership.
Once you buy shares now, you will not be given a certificate but a confirmation of the proof of ownership. Your shares will be held in electronic form at the Eastern Caribbean Central Securities Registry Ltd. (ECCSR), a subsidiary of the ECSE.
What are the benefits of dematerialization to the investor?
In a regional market--where investors will own companies in different jurisdictions--it will be logistically difficult to move physical certificates from one country to the other. Even if undertaken, there is a likelihood that the same could be lost or their delivery delayed.
Evidence of ownership can't be lost as the official record is maintained electronically by the ECCSR. You will receive periodic correspondence from the ECCSR regarding your shareholdings. Since physical certificates are no longer used, there is no possibility for theft of your records.
If you wish to sell your shares, you can more efficiently execute your transaction, as there will be no need to transfer physical certificates to conclude the transaction.
You can verify ownership of shares at any time without having to carry the physical certificates. Every shareholder will have a unique account number and an I.D. to be used to confirm ownership.
Changes you require on your records can be more quickly processed.
The ECSM and you are now part of global world of securities market modernization that is moving away from physical certificates and adapting to the New World order.
What will the Eastern Caribbean Central Securities Registry ECCSR do for the investor?
So once you buy or sell shares, the ECCSR will keep record of these transactions. The buyer of these shares will receive a statement from the ECCSR. On the ECCSR statement, the buyer will receive their Investor ID and Account Number.
The ECCSR is now the main record holder for these listed companies' shares. As a result of this, each shareholder is given a unique Investor ID and an Account Number. The Investor ID is a nine-digit number followed by capital KN (e.g. 000157511KN). The account number is numeric.
Also if you have changed your address, changed names or want to make a transfer (donation/gift), you could contact the ECCSR or follow instructions provided on this web site.
ECCSR will also communicate with you periodically apprising you of your shareholdings. Should you find any discrepancy, you could contact the ECCSR or your company.
How can the ECSE contribute to the regional economy?
Enterprises in the ECCB currency area need new sources of capital in order to compete effectively in the growing global marketplace. Capital allows them to buy new equipment, increase productivity and offer better services.
The ECSE provides a market for buying and selling a variety of securities. The ECSE gives entrepreneurs a powerful new vehicle for raising capital to support modernisation, expansion, new employment opportunities and economic growth.
