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The future of the capital markets in Guyana

By Enid E Bissember

GASCI

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FUTURE OF CAPITAL MARKETS IN GUYANA

• WHY DO WE NEED DOMESTIC CAPITAL MARKETS?

• LARGE FIRMS CAN RAISE CAPITAL IN GLOBAL MARKETS

• WHAT HAPPENS TO THE CAPITAL RAISING PROCESS OF SMALL/MEDIUM FIRMS?

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Four Functions of Capital Market1. Resource Allocation

– Allocate resources efficiently to maximize welfare

2. Price Discovery– Generate transparent price signals consistent with

efficient use of resources

3. Risk Management– Encourage good risk management that diversifies losses

and profits

4. Corporate Governance– Promote sound corporate governance that provides

proper incentives.

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Characteristics of Capital Market

– Accurate, timely and accessible

information

– Educated investor

– Efficient and robust infrastructure

– Efficient intermediaries

– Strong issuer

– Strong prudential framework with

enforcement

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Market Infrastructure

• Market infrastructure includes– the institutional arrangements that are

necessary for the smooth functioning of the market

– the trade execution system

– the systems used in clearing

– payments and settlement

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Current situation

• Bond market shallow

• heavily dominated by government debt

• Stock markets featured no new issues

• most equities not been traded with any frequency

• the banking sector main source of finance for both public and private borrowers

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The bond market

The development of a bond market is an essential element in ensuring that long-term funds are available for infrastructure investments

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Expectation

Developed domestic capital markets will lower dependence on volatile foreign capital inflows

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THE CHANGING MARKETPLACE

• GLOBALIZATION

• TECHNOLOGY

• EXCHANGE GOVERNANCE

• The CSME

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Support

Macroeconomic environment must provide the basis for the development of a sound microeconomic structure

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THE IPO MARKET

• MARKET ACTORS • REGULATOR

• DEVELOPMENT OF VENTURE CAPITAL

• ROLE OF BANKS

• PRICING & ALLOCATION MECHANISMS

• EQUITY CULTURE & EDUCATION

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THE OBJECTIVES OF SECURITIES REGULATION

•The protection of investors

•Ensuring that markets are fair, efficient and transparent,

•The reduction of systemic risk

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THE IPO MARKET

• PREPARE” TO GO PUBLIC

• STRATEGIC PARTNERS

• SELECT UNDERWRITER

• CORPORATE GOVERNANCE

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Benefits from development of IPO market

• ISSUERS

• INVESTORS

• EXCHANGE

• ECONOMY

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Domestic Debt Market Development

Lack of robust capital markets leads to weak and unstable corporate financial structures

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Why?

The efforts to develop local securities markets have been motivated by a number of considerations

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Why?

• Desire to stimulate domestic savings

• New financial instruments

• New investment opportunities

• Better portfolio diversification

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Why?• Alternative sources of funding

for both the public and corporate sectors

• A vehicle for managing financial risks

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Recent Trends in regional Securities Markets

• In Trinidad and Tobago bond market used by regional and domestic borrowers

• growth driven by the need to recapitalize some firms and to finance expansionary fiscal policies

• Large refinancing needs of the corporate sector in a difficult external environment

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Want is happening

• A number of countries have adopted measures to improve transparency and corporate governance, as they see these as critical for local capital markets development

• Caribbean Corporate Governance Forum

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Recommendation

• Strengthen domestic financial institutions

• Enhance prudential supervision and regulation in order to increase resilience to volatility

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Recommendation

• Develop local securities markets to provide an alternative source of funding for public and corporate sectors and to facilitate the management of the financial risks associated with periods of high asset price volatility

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Recommendation cont’d

• Create a “consensus” about the importance of the capital market to attract new participants

companies and investors

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Recommendation cont’d

• Enlarge individual’s investment by facilitating the access to different instruments

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Recommendation Cont’d

• Strengthen the domestic investment

• Improve the knowledge about the market mechanisms through Strong and sustained educational activities for investors

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Recommendation cont’d

• Enhance market infrastructure • Improve corporate governance

requirements • Remove policy distortions that affect

the efficient allocation of domestic savings

• Introduce new financial products and services

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Recommendation cont’d

• There should be clear and unambiguous rules and procedures that govern all major aspects of the market

• All participants must clearly understand their respective roles within the system, with well-defined procedures specifying where the responsibility for action rests

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