Transcript The future
The future of the capital markets in Guyana By Enid E Bissember GASCI EEB 1 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? EEB 2 Four Functions of Capital Market 1. 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 – EEB Promote sound corporate governance that provides proper incentives. 3 Characteristics of Capital Market – Accurate, timely and accessible information – Educated investor – Efficient and robust infrastructure – Efficient intermediaries – Strong issuer EEB – Strong prudential framework with enforcement 4 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 EEB 5 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 EEB 6 The bond market The development of a bond market is an essential element in ensuring that long-term funds are available for infrastructure investments EEB 7 Expectation Developed domestic capital markets will lower dependence on volatile foreign capital inflows EEB 8 THE CHANGING MARKETPLACE • • • • GLOBALIZATION TECHNOLOGY EXCHANGE GOVERNANCE The CSME EEB 9 Support Macroeconomic environment must provide the basis for the development of a sound microeconomic structure EEB 10 THE IPO MARKET • • • • • MARKET ACTORS REGULATOR DEVELOPMENT OF VENTURE CAPITAL ROLE OF BANKS PRICING & ALLOCATION MECHANISMS • EQUITY CULTURE & EDUCATION EEB 11 THE OBJECTIVES OF SECURITIES REGULATION • The protection of investors • Ensuring that markets are fair, efficient and transparent, • The reduction of systemic risk EEB 12 THE IPO MARKET • • • • PREPARE” TO GO PUBLIC STRATEGIC PARTNERS SELECT UNDERWRITER CORPORATE GOVERNANCE EEB 13 Benefits from development of IPO market • • • • ISSUERS INVESTORS EXCHANGE ECONOMY EEB 14 Domestic Debt Market Development Lack of robust capital markets leads to weak and unstable corporate financial structures EEB 15 Why? The efforts to develop local securities markets have been motivated by a number of considerations EEB 16 Why? • Desire to stimulate domestic savings • New financial instruments • New investment opportunities • Better portfolio diversification EEB 17 Why? • Alternative sources of funding for both the public and corporate sectors • A vehicle for managing financial risks EEB 18 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 EEB 19 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 EEB 20 Recommendation • Strengthen domestic financial institutions • Enhance prudential supervision and regulation in order to increase resilience to volatility EEB 21 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 EEB 22 Recommendation cont’d • Create a “consensus” about the importance of the capital market to attract new participants companies and investors EEB 23 Recommendation cont’d • Enlarge individual’s investment by facilitating the access to different instruments EEB 24 Recommendation Cont’d • Strengthen the domestic investment • Improve the knowledge about the market mechanisms through Strong and sustained educational activities for investors EEB 25 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 EEB 26 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 EEB 27 EEB 28