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Dated: 1 March 2003
The JCSD, a wholly-owned subsidiary of the Jamaica Stock Exchange, is a facility
for holding securities which enables share transactions to be processed by book
entry. A book entry system is an accounting system which facilitates the change
of ownership of securities electronically between parties, without the need
for the movement of physical documents. In short, the JCSD is an means of recording
the ownership of shares.
As the transactions in shares increase, the ability to settle these transactions
through the physical delivery of certificates becomes more cumbersome and error
prone. The JCSD allows participating entities such as brokers and institutional
investors to place their securities on deposit at the JCSD.
The JCSD registers the stock in its nominee name, in this case, the JCSD Ltd.
The JCSD maintains the certificates physically in its vaults, records securities
movements, and will debit or credit a participating firm's position through
a book-entry computerized system. The JCSD will shorten the settlement cycle.
When a trade takes place, there's a buyer and a seller. The buyer has to pay
for the stocks purchased and the seller has to deliver the stocks sold. This
is referred to as a "settlement cycle".
In 1987 regulators worldwide decided there was need for stronger measures to
reduce risks and promote safety and soundness in the market place. Since 1991,
an international committee of regulators has been examining shortening the settlement
cycle, among other initiatives, to achieve this goal. Even though our market
is safe, the regulators and securities firms operating here want to do everything
possible to ensure it stays that way.
To achieve even better efficiency, our shift to a shorter settlement cycle
in Jamaica, moves us closer to the international standard which is T+3. A number
of advanced markets are contemplating moving to T+1 by 2004.
As of September 2, 2002, the Council of the Jamaica Stock Exchange has decided
to move the stock market to a T+3 settlement cycle. T+3 means "trade day"
+ 3 business days. With a T+3 settlement cycle buying clients will be expected
to pay for their purchases on T+2, that is, two days after the trade had been
effected. On the sell side, clients can expect to receive payment at latest
on T+4, that is four days after trade had been effected.
This change is consistent with the JSE's objective of providing Jamaican investors
with a stock market which conforms to international standards.
The immediate advantage is convenience. Lessening the time before a transaction
is completed means it will be posted to your account more quickly.
To accommodate this enhanced efficiency, however, it is important to understand
that a shorter settlement cycle may necessitate some changes in the way you
do business with your investment company.
With a T+3 settlement cycle buying clients will be expected to pay for their
purchases on T+2, that is, two days after the trade had been effected. On the
sell side, clients can expect to receive payment at latest on T+4, that is four
days after trade had been effected. For most individuals this is a problem because
they do actually hold share or bond certificates physically. Instead they should
keep their securities in "street name".
Under the accelerated T+3 settlement cycle there are some real advantages to
keeping your securities in street name, as it is the fastest, safest and most
convenient way to ensure you get paid when selling a security.
Internationally, most people who own securities today don't physically hold
the stock or bond certificates. Instead their securities are kept on their behalf
by their investment company which is called keeping securities in "street
name". The investment firms will deposit your share and bond certificates
with the Jamaica Central Securities Depository Limited which on settlement date
(T+3), will electronically settle all purchases and sales of shares and bonds
without physically moving the certificates.
Securities certificates kept at home, even in a "safe" place, are
always in danger of begin lost, misplaced, stolen or destroyed by fire, water
or other household accidents. In addition, you have to worry about the hassle
of making sure you can get them to your investment firm quickly when you want
to sell them. Whether this is done in person or by mail, it's time-consuming
and potentially costly. If you can't find the certificates or if they get lost
in transit, you must go a duplicate certificate. In other words, your securities
are at risk.
Safety and convenience. Letting your investment firm protect your securities
is by far the safest choice you can make. With the assistance of the Jamaica
Central Securities Depository you will be assured of the safety of your investment.
The risks to the safety for your certificates will significantly decrease as
no physical movement of your securities will be necessary.
All that changes is an entry in the JCSD's book of record showing who owns
the shares and bonds and who owes money to pay for them. That's also convenient
when you need to buy and sell quickly.
Investors should be aware that their securities are safeguarded by being held
in "segregation" by their brokerage house. This means that they are
held separate and apart from those belonging to the broker/custodian and cannot
be used by the broker/custodian in his day-to-day business operations.
If your securities are segregated at your investment firm and it goes bankrupt,
your securities must be returned to you by the receiver or trustee.
You are also protected under civil law and by the Compensation Fund administered
by the Jamaica Stock Exchange specifically for that purpose subject to the provisions
of the Securities Act 1993. In addition, the Council of the Jamaica Stock Exchange
monitors the financial situation of all brokers.
In conducting business with your investment firm, certain basic rules will
remain the same.
| 1. |
Confirmation of all trades will continue to be issued immediately
to provide the earliest possible documentation on each transaction. However,
like today, trade confirmations are not invoices. Official settlement will
take place no more than five business days following a trade, and not upon
receipt of the confirmation. |
| 2. |
Securities bought are yours as of the trade date and, conversely, securities
sold are the property of the purchaser as of that date. |
| 3. |
Physical certificates will still be available to those who want them.
However, you may want to talk to your investment advisor about putting in
place appropriate procedures to ensure your certificates can be delivered
within the reduced five-day settlement cycle. |
| 4. |
The JCSD will be able to confirm how many shares are being held for you
in the depository by a participant.
Where do I get more information? |
Please call your investment advisor at your investment firm. He or she can
provide you with more information.
Or you can contact:
Jamaica Central Securities Depository Limited
40 Harbour Street,
Kingston, P.O. Box 1084.
Telephone: (876) 967-3271-4
Fax: (876) 922-6966
Email: JCSD@JAMSTOCKEX.COM
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