Listing To Float

From October 10, 2003 to April 18, 2005, market restructuring prompted a suspension of trading. Today, the BVRD trades from Monday to Friday, but briefly from 10 a.m. to 12am. Its central depository is CEVALDOM, through which all transactions are processed, and since 2011, is electronically traceable. According to the bourse approximately 75% of trades comprise cross transactions where buyer and seller are clients of the same brokerage company, of which there are 20 certified to operate at the BVRD. The next, rather delayed, step in formalizing the bourse came in 2000 with Securities Market Law 19-00 that created the securities market watchdog, the Superintendence of Securities (SIV). Market activity is also monitored by the National Securities Council. The former body is autonomous, yet subordinate to the Monetary Board, and is the body mandated to regulate Dominican monetary and financial systems. In regulating the BVRD it approves offerings and systematically publishes comprehensive market information to promulgate a climate of transparency. Meanwhile, the seven-member National Securities Council features representatives of the Central Bank, the Ministry of Treasury, the Chair of the Superintendent of Securities, and four members from the private sector. The Council publishes monthly securities market reports, and among other roles, mediates in any dispute arising among market participants, and hears appeals against any punitive decisions of the Superintendency of Securities.

There are a number of incentives for foreign investment in the BVRD, in that interest and dividends on traded securities are untaxed. Furthermore, Dominican law allows for the sale of securities in foreign currency, with dividends paid in the currency of the respective certificate transacted.

A STOCK TURNING POINT

The recent healthy liquidity of the money markets has perhaps ironically curbed potential interest in listing. Bank financing being readily available has meant that the only appealing feature of going public was the accompanying prestige, which the well-established family-owned entities, already long reputable, found irrelevant. Yet listing had to happen if only to slightly tip the scales away from fixed instruments. And now, the BVRD has seen the approval of its pioneering Initial Public Offering (IPO). Accordingly, the shares of Santo Domingo-based securities broker CCI Puesto de Bolsa become open for trading on the BVRD in 1Q2015. Time will tell whether the temptation of pursuing accountability, transparency and corporate integrity will spread to other companies. Any entity, be it a company or individual, planning to offer securities on the BVRD is required to become a corporation (sociedad anónima, or S.A.) in line by Company Law No. 479-08, and is then screened for adequate capitalization as a precursor to becoming listed.

PERFORMANCE

Bonds remain the primary instrument at the BVRD, and by 2011, the corporate bond market had risen to 1.3% of GDP from just 0.1% in 2005. And 2014 proved to be a memorable year on that front. The Caribbean nation sold a record volume in its first offering of 30-year dollar debt since 1994. In April 2014, $1.25 billion of securities due in 2044 were issued at a yield of 7.45%, according to Bloomberg. Goldman Sachs Group Inc. and JPMorgan Chase & Co. arranged the transaction.

BVRD data for 2013 puts combined trade at the primary and secondary markets at Ps9,799,937,615.20. Overall trading volume for all instruments in 2013 stood at $116,800,968,466.91, where Special Investment Certificates claimed the lion’s share at 57.8% of the total, at $67,452,769,972.79. Debt bond 131-11 at 14.9 billion, accounting for 12.7%, was next in line. Meanwhile, more recent data for November 2014 reveals that overall instruments traded in the primary market stood at Ps44,425,654, and in the secondary market at Ps2,067,301,015.

The broadening of the Dominican equity market ultimately requires IPO pioneers and a paradigm shift in terms of corporate self-reflection. Government issuances in the debt market are subject to effective regulation, yet a wider range of instruments to entice investors would foster greater transparency, boost liquidity and by extension stimulate the broader economy.