Government Securities to be converted to Electronic Format

The House of Representatives on Tuesday (January 19) passed legislation to make it compulsory to convert Government securities into a dematerialised security or electronic format.
Minister of Finance and the Public Service, Hon. Audley Shaw, who piloted the Bill, explained that the move will provide for “the speedy settlement and trading of securities, and result in cost-savings and risk mitigation for the Government and other stakeholders.”
As set out in the Government Securities Dematerialisation Act (2010), once a shareholder opens an account, he/she may buy or sell shares in electronic form without any paperwork. The Bill appoints the Bank of Jamaica (BoJ) as the registrar, while making provision for the future designation of a licensed central securities agency, person or body, to be appointed as such. The registrar is required to maintain a register containing such particulars as may be prescribed.
The Finance Minister told the House that it is an opportune time to pass the law, which would facilitate the Government’s recently launched debt exchange initiative, which will involve as much as 40,000 pieces of securities.
The debt exchange is aimed at securing fiscal savings by exchanging existing high cost debt for new instruments that have lower coupons and longer maturities.
The Minister noted further that the electronic system is in keeping with international best practices. “At present, the various laws empowering the Government to borrow money restrict the issue of Government securities to physical paper form,” he stated.
Investors are required to keep instruments in safe custody because the process of getting duplicate copies whenever the shares are lost is sometimes arduous Mr. Shaw said. “This system is also affected by many problems including delay in the transfer of shares, huge transaction costs, longer settlement cycles and larger paper volume. These factors are barriers to entry of investors into the market,” he stated.
Mr. Shaw assured that the Government, in partnership with the BoJ, will continue to facilitate the development of a modern and efficient domestic capital market by the establishment of a central securities depository to facilitate the issuance of new securities in dematerialised form only.
In lending his support to the measure, Opposition Spokesman on National Security, Peter Bunting pointed out that the absence of a central depository for debt instruments had caused many institutions to create their own in-house custody arrangements to avoid having to send certificates back and forth to the Ministry of Finance.
“The challenge that this creates is that when the Ministry of Finance looks at its register of holders of Government security, you don’t know what is being held as custodian versus what is being held as beneficial owner. That could create a challenge particularly if it underestimates the risk of the number or the amount of bonds actually being held outside of the financial institutions from a beneficial owner point of view,” Mr. Bunting said.
Although expressing concern that the BoJ might be bogged down with the day to day responsibility of being an interim registrar, Mr. Bunting said that having a central depository was necessary, and would reduce the overall operational and administrative risk in the financial system. Taking note of Mr. Bunting’s observations, Mr. Shaw assured that the registrar would not be the permanent responsibility of the BoJ.