Barbados Stock Exchange: Nimble And Responsive

IFC: This year’s edition examines how Blockchain, and cryptocurrencies have continued to gain increased acceptance as a transformative technology and asset class. How is the BSE currently working towards increasing the spread and application of FinTech in Barbados?

TB: The BSE believes that Blockchain technology, as part of wider financial innovation, has a place in augmenting its operations as Barbados’ premiere exchange. In fact, over the past five years the BSE has been part of several committees, panels, and general gatherings on Blockchain technology – we have had both direct and indirect involvement in Barbados’ wider interest in this shifting digital paradigm.

IFC: The BSE recently signed a Master Agreement with Canadian FinTech Blockstation to introduce a new blockchain-driven tokenised securities marketplace. What is hoped to be achieved with this?

TB: The BSE’s signed Master Agreement with Blockstation paves the way for the exchange to satisfy the growing demand for secure, regulated means of listing tokenised securities. Blockstation’s technology solution – dubbed the ‘Digital Asset Platform’ (DAP) – will be soon integrated as part of the BSE’s International Securities Market (ISM).

Ultimately, it is envisaged that the DAP will uniquely position the BSE to provide issuers with an efficient, dynamic yet secure market ecosystem to tokenise equity, raise capital, and/or conduct cost-effective Initial Public Offerings (IPOs).

IFC: The cryptocurrency market is often criticised for its lack of regulatory rigour – what is the BSE’s current stance on crypto trading?

TB: The BSE is specifically focused on Blockchain technology and not crypto trading. This focus stems from the BSE’s strict licensing as a regulated, ‘securities’ exchange.

The debate on whether some, most or all cryptocurrencies are in fact ‘securities’ is still being debated in leading, developed markets – our regulator the Financial Services Commission (FSC) of Barbados has not issued definitive guidance in that arena. As a result of this regulatory lacuna, the BSE will not list any financial instrument that does not meet the definition of a ‘security’ under the Securities Act – Cap 318A of the Laws of Barbados. Should guidance or legislation change however, the BSE remains open to embracing legal financial innovations on behalf of our capital markets.

IFC: As the demand from investors and companies to manage climate risks grows, our second key theme examines the increasing importance of Sustainable Finance and ESG/Impact Investing. How does the BSE plan to provide a platform for this expanding market?

TB: Sustainable Finance and ESG/Impact Investing are increasingly important topics in a world experiencing environmental challenges.

To that end, in Q1 2022 the BSE applied and was accepted to be part of the UN’s Sustainable Stock Exchange (SSE) Initiative. The BSE is now recognised as a ‘partner exchange’ – a move that has solidified our own commitment to transparency and sustainability. As an added result, the BSE is also now part of a global network of over 100 exchanges around the world that are committed to promoting sustainable development.

Moving forward, the BSE will engage in peer-to-peer dialogue to explore how the exchange can work with investors, regulators, and companies to encourage sustainable investment, while also working to enhance transparency, accountability, and respect for the rights of all stakeholders. In addition, ensure performance in respect to ESG issues, in line with the SSE Initiative’s goals.

IFC: Does the BSE see any potential risks or challenges associated with the Sustainable Finance market, e.g., Greenwashing?

BB, TB: Having only recently signed on the UN’s SSE initiative, the BSE is aware of the inherent risk associated with the new instruments being issued in this market space. However, as there are no sustainable finance instruments currently listed, and we have not been approached by any potential issuers of these securities, it is too early to for us to comment on the impacts they might have in our jurisdiction.

To mitigate potential risks or challenges in our jurisdiction, however, we will be engaging the market during the fourth quarter of 2022. We will be hosting a series of informative sessions for existing and prospective issuers along with other market participants to educate and enlighten them on the SSE Initiative and ESG best practices.

IFC: Previously, the BSE discussed plans to foster trading partnerships with national exchanges in Kenya and Ghana. What is the status of these relationships? Are you currently exploring any new markets or potential strategic alliances?

MY: Since 2016 the BSE has pivoted to focus its business efforts to support the International Business Sector (IBS) of Barbados. Consequently, the BSE established the ISM to facilitate the listing of international securities in “hard currencies”.

To support the ISM, a strategic decision was taken to seek global alliances and recognitions.

The alliances were in the form of developing Memorandum Of Co-Operations (MOCs) with exchanges around the world. We have signed three thus far. Our first MOC was with the London Stock Exchange PLC (LSE) back in November 2007; this was followed by an MOC with The Guyana Association Of Securities Companies and Intermediaries Inc. (The Guyana Stock Exchange (GSE)) in March 2019; and the most recent being with the Nairobi Securities Exchange PLC (NSE) in December 2019.

The primary purpose of these MOCs is that we learn from each other’s respective markets so as to develop our own; and where possible facilitate the cross-listing of securities in each other’s markets.

Another strategic initiative is to seek recognition by tax authorities and/or Ministries of Finance where Barbados domiciled (or not) companies originate across the globe. This facilitates securities of these companies listed on the ISM being treated from a tax perspective in a similar way as if they were listed in their home or originating jurisdiction.

For example, all the markets of the BSE, including the ISM is designated as a ‘Recognised Stock Exchange’ by Her Majesty’s Revenue & Customs (HMRC) in the United Kingdom. This recognition has a profound implication: in addition to their regulatory coverage under Barbados’ securities legislation, the BSE’s markets – and the securities resident therein – will meet the HMRC definition of either ‘listed’ or ‘not listed’ for the purposes of HMRC legislation in the UK.

A practical application of a benefit of this designation is holders of satisfying BSE-listed debt securities can avail to the Quoted Eurobond Exemption (QEE) – a mechanism that ensures the exemption from withholding taxes on distributions.

The BSE is seeking recognition in other markets key to Barbados’ IBS by providing a listing platform internationally recognised. Other markets we are seeking or will be seeking recognition from are North America, South America, Africa, and Southeast Asia.

IFC: The BSE rebranded its Junior Market in 2019 to become the Innovation and Growth Market, along with a plan to expand access to capital for MSMEs. What potential does the BSE see in an international SME market?

BB: The BSE’s IGM is a market for local companies only. Our focus, since the rebranding exercise, has been concentrated solely with the revitalisation of local small businesses taking part in the capital markets. Many small businesses on island have lamented on the challenges related to the effectiveness of existing financing options for businesses of this nature. We believe the capital markets can provide these smaller companies with better opportunities to raise cost effective capital to fund growth and expansion in their operations.

As it relates to an international (or regional) SME market, while pursuing an initiative of this magnitude would be within the purview of the BSE, it is currently deemed as a medium to long-term initiative for the BSE as we are committing our efforts on enhancing our offering specifically to the local SME market. 

IFC: As an electronically trading Exchange, the BSE adapted quickly to the disruptions caused by the COVID-19 pandemic due to its strong ICT infrastructure. Are there plans in the pipeline to further digitise operations and mitigate any future risk?

BB, TB: During the first quarter of 2022, the BSE commissioned the development of a mobile trading application which is scheduled to be completed by the end of the fourth quarter of 2022. The development of the mobile app is intended to remove administrative hurdles for investors, allowing enhanced market access for trading and portfolio management.

Online stock trading is not a new phenomenon – in Canada, for example, this was introduced in 1996 when TD Bank unveiled “WebBroker.” Today all of Canada’s “Big Six” banks and a handful of independent upstarts offer self-directed trading platforms with accompanying mobile apps. This evolution, typically ‘broker-led’ in developed jurisdictions, has never materialised in Barbados. Barbados’ capital market, in 2022, still relies on a telephone call or an email to a broker for trades to be executed.

To modernise our mandate of providing ‘efficient and cost-effective’ trading, the BSE has decided to pursue an inverse market architecture – we are looking, instead, to create a one-stop portal where investors can select brokers and effect their trading, thereafter, more directly.

IFC: The BCSDI Custodian Trust Services Inc. (BCTSI) was created in early 2021 to deliver effective custodian and trustee services to market participants in the financial services industry. How successful has the entity been in this regard thus far?

MY: The BCTSI is moving with all deliberate haste in onboarding statutory and other funds from local financial institutions - property, casualty and life insurance, pensions, mutual funds, and segregated funds.

Our success is not only measured in financial matrices – assets under custody, assets held in trust, expense ratios, profitability etc., but also in the conscientious customer service we deliver. We are clear as to the value proposition we offer, that is, direct access to the decisionmakers in the BCTSI to ensure that our custody trust service meets regulatory requirements and international best practice at a competitive price. The aim is to ensure the assets of the ultimate underlying beneficiaries are safeguarded within not only the word of the Law but the spirit and intent of the regulatory framework.

Our immediate market is the local financial institutions but our medium to long-term strategy is to offer custodian trust services to companies in the IBS.

IFC: It was recently announced that Barbados is to remain on the Financial Action Task Force’s (FATF’s) grey list for deficiencies in AML/CFT. What effect is this likely to have on business in the jurisdiction; and do you feel that constant regulatory demands from international bodies such as the OECD are potentially hampering innovation?

MY: There is no one size fits all when it comes to regulation for Developed Countries as there is for Underdeveloped Countries or a Small Developing Economy (SDE) like Barbados. This goes for AML/CFT requirements as proclaimed by the OECD and FATF. That being said, the BSE complies with all the requirements regarding the Money Laundering And Financing Of Terrorism (Prevention and Control) Act, 2011-23, of the Laws of Barbados. This Act has been drafted in accordance with FATF Recommendations.

If Barbados intends to do business internationally it must make reasonable efforts to meet international requirements. In addition, Barbados needs to ensure it is at the table when these “soft law” rules are being drafted to let the drafters be advised that some of the mischief they are attempting to counteract does not occur in SDEs like Barbados and the recommendations devised may have the effect of stifling economic growth and innovation.

IFC: What key factors make the BSE the stock exchange of choice for domestic and international companies seeking to apply for a listing?

BB: Over the years the BSE has invested heavily to ensure that it employs robust software systems to facilitate the listing, trading, clearing and settlement of all securities listed on its board. Having done that, we then focused our efforts on developing markets that provide issuers of securities with the best prospects to raise capital, while simultaneously giving investors opportunities.

Efforts have traditionally been geared towards our local market, but we thought it prudent to cater to international companies as the island was experiencing growth in its international business and financial services sector by establishing our International Securities Market (ISM). Although growth in this sector was primary attributed to years of doing business across jurisdictions, we went a step further to add credence to the ISM by seeking out recognitions from regulatory authorities in those jurisdictions with which the island has strong business relationships. Our efforts bore fruit when the BSE was obtained ‘Designated Recognised Stock Exchange’ status from the United Kingdom (UK) Her Majesty’s Revenue & Customs (HMRC) in August 2015. This recognition of the BSE by HMRC under the UK-ITA should act to encourage enhanced capital investment by UK investors while providing viable investment alternatives for a wider section of the British public.

We are currently pursuing recognition in Canada and ultimately the United States of America.

IFC: Where can we expect the BSE to focus its efforts during the remainder of the year and into 2023?

BB: For the remainder of the year, the BSE will continue its efforts to further educate the general public on the benefits of investing as it relates to creating wealth. Simultaneously, we will be intensifying our drive to secure more listings on our board. This year we made a concerted effort to attract listings to our Innovation and Growth Market (IGM) by identifying prospective issuers and engaging them directly in meetings to discuss the IGM, its requirements, the associated costs to listing and the benefits and opportunities to be had once listed.

Our intention is to revitalise the local capital market by stimulating the demand side through public education while improving the offerings on the supply side by illustrating how going public strategically positions a company for continued growth and prosperity.

IFC: Is there anything you would like to add?

MY: The BSE is grateful for the opportunity to share some of its story. We look forward to serving the international client. We will be nimble and responsive to our clients’ needs ensuring compliance with all regulatory requirements and best practice.