Trading on Jamaica's stock market

Oran Hall, Personal Finance Advisor Columnist

QUESTION: I am very interested in trading on the Jamaican stock market. I am new to this and need as much information as possible. Firstly, what legitimate organisations facilitate the initial set-up of accounts to be used in trading? What is the minimum amount of stocks that can be initially purchased?

PFA: I like this definition of the stock exchange in 'A Guide to Jamaica Securities Markets', which says: "A stock exchange is simply a marketplace where securities, that is, shares, stocks, or bonds, are bought and sold quickly, efficiently and under strict regulations for the protection of investors."

Our stock exchange, like the more than 120 others all over the world, plays a unique role in providing companies which list their securities on it with a liquid market for the trading of their securities. By owning shares, you will benefit from the growth in their value and receive income in the form of dividends.

Only qualified and approved Jamaica Stock Exchange (JSE) broker-dealer firms, which must acquire and hold trading licences and be approved as dealer-members of the Jamaica Stock Exchange (JSE) by its board, can buy and sell shares on the JSE on behalf of their clients.

There are 11 broker-members of the Jamaica Stock Exchange.

Each firm has to meet certain basic financial requirements on an ongoing basis. Its senior executives, shareholders and employees who deal with the public must pass a 'fit and proper' test and all representatives of the broking firm who execute the orders of clients and the firms on the stock exchange must be approved.

The Financial Services Commission (FSC), as the regulator of the securities industry, oversees all dealer/members of the JSE, the Jamaica Stock Exchange and the Jamaica Central Securities Depository, a wholly-owned subsidiary of the JSE that facilitates the change of ownership of securities electronically between parties without the need for movement of physical documents.

The FSC also licenses stock broking firms and other investment dealers and advisers and registers their representatives.

This helps to ensure that the companies that handle your investment matters are financially sound and follow best practices and that their employees are suitable to manage your financial affairs.

Each dealer-member of the JSE has its own minimum transaction size but it is fair to say that they tend to set the minimum at a level where they can at least cover the costs they incur in carrying out business for their clients. Most tend to require minimum orders with a value of J$25,000.

The commission charges levied by brokers on transactions done on behalf of clients were deregulated in March 1994; so the commission today is what is agreed between the client and the stockbroker.

But there are other charges attached to the purchase and sale of ordinary shares. There is a JSE cess of 0.19625 per cent on the buying side and selling side of each transaction and a JSE trading fee on each side of the transaction ranging from J$75 on transactions of up to J$50,000 to J$500 on transactions of more than J$10 million. All charges attract general consumption tax.

You must open an account before you can purchase or sell shares. I recommend that you meet personally with your broker. You will be required to complete a form that will capture vital information on you.

The name of the form varies depending on the broker you are dealing with but it is generally described as a new client form or a client opening form. It will capture information on your address, age, employment, investment objectives, risk tolerance, investment knowledge, and financial position.

You may also be asked for character references and to identify the financial institutions with which you do business.

The brokers need this data to judge the risk involved in accepting your account, to be able to give you suitable advice and service, to provide a basis for client support, and to comply with the requirements of the regulatory authorities.

You should know that there are risks involved in investing. The price of ordinary stock fluctuates although it tends to appreciate over the long term. Before buying shares, seek to know as much as possible about the company in which you intend to invest.

Seek professional advice from a competent professional such as a stockbroker. Read reputable financial publications. After buying your shares, monitor and track your investment.

I wish you success.

Oran A. Hall, a member of the Caribbean Financial Planning Association and principal author of "The Handbook of Personal Financial Planning", offers free counsel and advice on personal financial planning.Email: finviser.jm@gmail.com