A bull grazing on a grassy slope sees a herd in the valley below all running in a stampede. He runs down the slope and joins the procession at full speed. Glancing to the bull running beside him he asks “what’s all this about? why the stampede?”. Panting the other responds “I don’t know! I was grazing, saw these guys running and decided to join the herd and now I’m just following the ass in front of me!”
As the United States financial meltdown spreads globally, governments have the tedious task of pledging billions in financial support in order to maintain stability & confidence in the soundness of their respective country’s financial system.
Jamaica’s financial system is overseen by two entities: The Bank of Jamaica (BoJ) and The Financial Services Commission (FSC). The BoJ oversees the deposit taking institutions comprising Merchant Banks, Commercial Banks, Building Societies and Cambios. The FSC oversees all other investment broker dealers. Still standing alone is the self regulated Credit Union Movement.
Persons investing must always have a clear understanding of the type of investment they are getting involved in, as well as the financial standing of the company they are doing business with. Since the experience of the 1990’s in which there was the Jamaican financial meltdown, the oversight bodies have been strictly monitoring the players in the market. Reporting requirements examining the various risks (such as liquidity and concentration) have to be submitted on a timely basis and ratios strictly adhered to.
Investors in deposit type products offered through the institutions overseen by the BoJ, have the comfort of knowing that their deposits are covered by the Jamaica Deposit Insurance Company (JDIC) up to the amount of Six Hundred Thousand Jamaican Dollars (JAD600,000.00). Therefore, if an institution was to fail, the JDIC has committed to compensating depositors within three months.
Investors doing business with broker/dealers regulated by the FSC will be accustomed to notations on their statements stating that their funds are not insured through JDIC. The inherent difference is that also on their statements would be the security item in which they are participating.
This is not categorized as an asset on the balance sheet of the broker dealer, therefore persons should understand that in any unpleasant eventuality these instruments would not classified as part of the asset of the company. Thus, a liquidator could not sell these to set off any debt obligation of the institution.
All local brokerage houses invest heavily in Government of Jamaica (GOJ) instruments for their perceived safety and liquidity. With a local Sovereign Debt note the country will always have the ability to repay. Repayment could be in the form of one of the following: Government floating a new issue and using the revenue to payout maturing schedules, utilizing their reserves, increase taxation, or when all else fails, print new monies. In the case of Foreign denominated Debt, repayment would be in the form of the first two options.
Our Central Bank, the BOJ, has taken the same stance as other central banks, to stand ready to provide the necessary liquidity assistance to the sector if ever required. Their ability to buy back locally denominated securities issued by the GOJ, makes these instruments very liquid.
Individuals also have the option of buying the securities outright using their broker as intermediary. The security would be registered in the client’s name and would have various options of receiving interest on the assigned payment dates.
Jamaica’s capital market has evolved since the 1990’s and is more advanced than most in the region. This has been helped by the various financial legislations, which strengthen the oversight authority and protect depositors and stakeholders within the industry.
Therefore the individual investing should get all the information of the institution in as far as the type of instrument he is investing in, liquidity (how easily it is transferable to cash if required) and financial standing of the institution. Most importantly however is the implicit support of the central bank to the financial community during this, a global challenging time.
Leisurely enjoy grazing.
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Contributed by David Weir..
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