Trevor E Blake

ACSDA GENERAL ASSEMBLY

PANEL 2: UPDATE ON BONDS

2

Introduction The Eastern Caribbean Central Securities

Depository (ECCSD) Wholly-owned subsidiary of ECSE Services the Eastern Caribbean Securities

Market (ECSM) & Regional Government Securities Market (RGSM)

Both fully integrated regional markets for 8 member countries of the Eastern Caribbean Currency Union (ECCU)

Anguilla; Antigua & Barbuda; Dominica; Grenada; Montserrat; St Kitts & Nevis; St Lucia; St Vincent & the Grenadines

Common legislation Common regulatory commission Common market institutions

3

The Markets ECSM

primary issuance of corporate securities; secondary trading in corporate and sovereign

securities RGSM

primary issuance of government securities Both markets are fully dematerialized Settlement on T+1 on DVP (model 2)

basis Fully electronic Conform to international standards

IOSCO, WFE, CPSS

4

Securities registered 76 Securities

maintained at CSD 16 Equities 10 T-bills 50 Bonds & Notes

15 Corporate Bonds

35 Sovereign Bonds & Notes

Registered Securities

13 18 21 28 35

9 8 1012 10

12 12 1717 16

12 16 17 13 15

0%

20%

40%

60%

80%

100%

2006 2007 2008 2009 2010

Sovereign Bonds/Notes T-Bills Equities Corporate Bonds

5

Listed Securities

57 Securities listed on ECSE

13 Equities 44 Debt Securities

Listed SecuritiesEquities22.8%

Corporate Debt7.0%

Sovereign Debt

70.2%

Fixed Income Securities dominate the market

Led by Sovereign debt

Listed Securities

10 10 14 14 13

23 31 37 42 44

0%

20%

40%

60%

80%

100%

2006 2007 2008 2009 2010

Equities Fixed Income

6

Listed Sovereign Debt Securities

Sovereign debt securities 6 T-Bills 8 T-Notes 26 Bonds

Sovereign Debt Securities

10 14 16 23 26

34 5

589 8 10 10 6

0%

20%

40%

60%

80%

100%

2006 2007 2008 2009 2010

Sovereign Bonds Treasury Notes Treasury Bills

One Government dominates the market

Listed Sovereign Securities by Issuer

23

32

23

7

56.0

140.1

49.095.0

734.3

165.0

1 10 100 1000

ANU

DOM

GND

SKN

SLU

SVG

# of Issues Amount $ M

7

Bond Market Activity Primary

RGSM Regular issues on

market ECSM

1 corporate issuer in 2010

Amount Raised in Primary Markets

0 50 100 150 200 250 300

20062007200820092010

Millions

Sov Bonds Corp Bonds

Secondary Activity led by

Sovereigns

Secondary Market Trades Value

0%

20%

40%

60%

80%

100%

2006 2007 2008 2009 2010

Soveign Bonds Corporate Bonds

8

CSD Activity CSD clearing &

settlement activity dominated by debt securities

Led by T-Bills Monthly issues &

redemptions

Relative Contribution of Bonds to Income in 2010

56.75%

43.25%

Income from Bonds Income from Other Securities

Income from Bonds account for 56.8% of overall income

CSD Activity (Volume)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2007 2008 2009 2010

Sov Bonds Equities Notes T-bills Corp Bonds

9

Bond Markets Opportunities

Significant Growth Potential Sovereigns

Of 8 ECCU Governments, only 6 have securities listed

Only 4 currently active on RGSM Central Bank encouraging all 8 Governments to

participate

Corporates Only 2 companies have issued bonds Currently only 1 regular issuer Commercial paper also a possibility

10

Bond Markets Challenges

Sovereigns Maintenance of sustainable debt levels Obtaining credit rating Meeting disclosure requirements

timeliness

Corporates Convincing companies of benefits of issuing debt

direct to market Attractive lending rates offered by banks Cultural factors

financial system traditionally bank-centric Obtaining credit ratings Investor relations

11

CSD-Central Bank Interaction Settlement Process

Funds settlement effected through a network of clearing banks within the RTGS administered by the Central Bank

Each broker must designate a clearing bank that is a part of Central Bank clearing house

CSD has settlement account at Central Bank Settlement in Central Bank money

Settlement on DVP Model 2 basis Securities settled on trade-by-trade (gross) basis Net money settlement

12

CSD-Central Bank Interaction RGSM

Central Bank as Fiscal Agent of Governments Issue & Registration of Securities

Central Bank liaise with CSD on all Governments’ market issues

Central Bank is auctioneer for primary issues Proceeds of auctions settled to Governments’

securities accounts at Central Bank

processing Corporate actions Payment on Sovereign debt securities processed

through Central Bank Governments provide funds in account at Central

Bank for Semi-annual interest payment Redemption of principle on amortization and

maturity

13

Conclusion Markets in Eastern Caribbean dominated by debt

instruments Sovereign debt represent

majority of listings on market majority of registration in CSD Major part of market activity

Bonds, both corporate and sovereign, contribute to significant portion of CSD income

Considerable scope for further growth in both corporate and sovereign bond markets

Need to convince companies to by-pass banks and issue debt in market

Governments need to maintain sustainable debt levels; obtain ratings and to provide more timely information to market

Close collaboration with Central Bank essential in multi-country environment