Financial System Pt2Our objective in Part 1 and this Part 2 is to provide a macro view of Trinidad and Tobago’s financial system to help you become an informed investor. To repeat from Part 1, we are focusing on a “layman’s” description: nothing overly complex, but enough information for you to understand how the parts fit into the whole.

We previously considered the role of the Central Bank of Trinidad and Tobago and the institutions it regulates. In the article, we’ll first turn our attention to the securities industry and then touch on the National Insurance Board.

What is a “security”?

Firstly, “security” in this context does not mean collateral you provide for a loan. We are instead referring to the Securities Act 2012, in which the term security has a very broad meaning.  It encompasses nearly any investment product, but it does not include a deposit with a financial institution (e.g a bank), credit union or insurance company.

The most common examples of securities are:

  1. Bonds, debentures, notes (or other evidence of indebtedness);
  2. Shares, stocks, units, unit certificates, participation certificates;
  3. Any investment contract;
  4. Any asset-backed security.

Try to look at it this way, investors have several investment options available to them and it is worth knowing if they are regulated, and if so, by which regulator. For example:

  • Bank deposits are not securities, but the banks are regulated by CBTT
  • Issuing and trading of all securities are regulated by the Trinidad and Tobago Securities and Exchange Commission (TTSEC)
  • Other investments may be unregulated (for example, purchasing a property to earn rental income is not a regulated activity)

You may wonder why it is important to have someone oversee (i.e. a “Regulator”) these options and supervise the companies that undertake these activities.  We consider this in more detail in the article Investor Protection in Trinidad and Tobago.

Trinidad and Tobago Securities and Exchange Commission (TTSEC)

TTSEC is responsible for ensuring that the securities industry operates in a fair, transparent, and efficient manner. It regulates the securities market by registering all securities distributed to the public, as well as registering all issuers of those securities and market intermediaries directly involved in the issue, offer and sale of those securities.

Industry players

There are many players in securities industry (referred to as “Market Actors” in the Securities Act 2012). The more common ones are:

  1. Intermediaries that are required to be registered with SEC (referred to as “Registrants” in the Securities Act 2012 – see below
  2. A custodian of assets, shares or units of a collective investment scheme (we’ll explain collective investment schemes in a future article)
  3. A transfer agent for securities of a reporting issuer
  4. A registrar for securities of a reporting issuer
  5. A clearing agency

Investors would tend to have the most interaction with #1 above i.e. the “Registrants”, so a few examples of Registrants are listed below, with a few words of explanations of the more common ones:

  • Broker-Dealers
  • Investment Advisers
  • Underwriters
  • Self-Regulatory Organizations
  • Certain employees or officers of Broker-Dealers, Investment Advisers and Underwriters are also required to be registered with the Commission as Registered Representatives

Broker-Dealer

For a buyer and seller of securities to enter into a transaction together, they need an authorized intermediary to “broker” or arrange the transaction on your behalf, usually for a fee or a commission for the service. A broker executes orders on behalf of his/her client; a dealer executes trades for his/her firm’s own account.

Investment Adviser

An individual or firm that advises clients on the purchase or sale of securities on a professional basis.

Registered Representative

An employee or officer of a registered Broker-Dealer, Investment Adviser or Underwriter who liaises with members of the public on behalf of their employers further to the offering, distribution or sale of securities.

Reporting Issuer

A company that has issued or proposes to distribute securities to the public and is subject to the continuous disclosure requirements of the TTSEC.

Underwriter

A company that arranges for the issuance or distribution of securities and/or agrees to purchase any unsold securities thereby guaranteeing full subscription.

Trinidad and Tobago Stock Exchange (TTSE)

The TTSE has been in existence since 1981 and is our centralized marketplace for buying and selling shares and other securities.  TTSE regulates trading on the secondary market, as well as the activities of the members of the exchange, subject to oversight by TTSEC.

Current members of the exchange are also authorized stockbrokers – you transact with one of these brokers when you wish to purchase a security listed on TTSE. A list of authorized stockbrokers can be found here.

For completeness, a list of authorized government securities intermediaries can be found here. We’ll discuss the role of government securities intermediaries in an upcoming article.

Trinidad and Tobago Central Depository (TTCD)

TTSE and TTCD work together to execute security transactions (TTCD is a subsidiary of TTSE).

In the past, when you purchased a listed security, you received a physical paper certificate to prove you owned the shares, and when you wanted to sell, the physical certificate had to be transferred to the new owner. As you could imagine, the thousands of pieces of paper was a nightmare to manage for both companies, TTSE, and investors.

Investors now place their physical certificates with TTCD for safekeeping in an account in their name. Buying and selling of shares are now executed electronically and the ownership changes are also processed electronically without having to exchange physical certificates.

The added benefit of electronic records is more efficient settlement and clearing of transactions – a few clicks and it’s done.

The TTCD also offers registrar services for companies – while this has less impact on an investor, it is still useful knowledge.  Public companies could have thousands of shareholders and it is quite a task to manage the register of shareholders. This administration can be outsourced to the TTCD’s registrar who then provides a specialized service to maintain the register of shareholders,  processes stock transfers and addresses inquiries from shareholders, brokers and clearing agents.

So that’s an overview of the securities industry. Let’s briefly consider the role of another major player in our financial system – the National Insurance Board.

National Insurance Board (NIB)

The NIB is another giant of the local financial system, but it is unlikely individuals, in their capacity as investors, will have much interaction with NIB. The NIB, however, is a significant investor itself in the local market and as such influences many facets of the system.

In summary, NIB’s role is to administer our national social security system, the objective of which is to provide for the basic needs of contributors who are retired or unemployed due to a disability or disadvantage. We’ll consider the role of the NIB more comprehensively in a separate article.

Wrap Up

We hope this article, together with Part 1, helped you achieve at least a high level understanding of our local financial system. This series continues with the article Investor Protection in Trinidad and Tobago. Hope you check it out!

Please feel free to share your thoughts or experiences in the comments area below! If you have questions, don’t hesitate to Contact Us: we’d love the opportunity to assist you.

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Hi. I hope you enjoy reading the posts! I have 20 years regional and international experience in financial services, and I am passionate about helping others achieve Financial Freedom by making wise financial decisions. Keep coming back!

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