JSDA presses for forex policy rethink
Published:Friday | July 2, 2010 | 12:00 AM
Jamaica's securities dealers are ramping up calls for the Bank of Jamaica (BOJ) to ease restrictions on foreign currency products, saying the policy constrains investment houses who are being pressed by regulators to diversify away from repos and to be more innovative in their product mix.
With the unit trust market now open to new products and players, the current interest is in developing United States (US) dollar-denominated products, but for such offerings to come to market, the central bank has to give approval.
"... We are still prohibited by the Bank of Jamaica Act, from issuing US-dollar unit trust products, despite the fact that almost 50 per cent of repos in the market are denominated in US dollars," said Anya Schnoor, president of the Jamaica Securities Dealers' Association (JSDA), at the group's annual luncheon Wednesday.
That entreaty was issued with Prime Minister Bruce Golding as audience. He too, at the luncheon, joined the call for the dealers to innovate.
"The position put forward is that the industry needs to diversity and reduce the risk associated with its repo business," Schnoor said.
"How exactly are we to do this? Until February of this year, security dealers were prevented from issuing new unit trust products to clients, a key product to aid diversification and reduce repo liability funding," the JSDA head said.
Repos have long been the mainstay for dealers, with the bulk of the income of many such firms coming from interest earned on these instruments.
Last year, the largest three brokers had more than $200 billion of repos on their balance sheets.
The Financial Services Commis-sion has been nudging investment houses to realign their business models to rely less heavily on repo transactions for earnings so as to eliminate risks said to be inherent in such concentration of investments on the dealers' balance sheets.
Schnoor, on Wednesday, described as "old", arguments still being used to stifle greater diversity in the unit trust market, suggesting such a position was being counterproductive.
"One cannot speak about risk when the very policies which exist in the financial system do not allow for risks to be eliminated," she said.
"The old argument of currency flight and the risk of capital flight are really just that - old."
The industry representative is urging the BOJ to the table on the matter.
"We have long advocated for the removal of the restrictions placed on securities dealers to allow them
BOJ communications manager Tony Morrison said Thursday the issue was still under review.
Golding told the dealers that he wanted firms to become key intermediaries channelling savings into real investments for the country.