The stock exchange is an indispensable facet of business world-wide. It is where Government securities, shares, bonds and debentures of the trading units are regularly transacted.
The stock exchange is also a good index by which the health of the economy can be graded. For example: if the share prices for companies are increasing, it means the country is on the path of growth and success.
Essentially, the stock exchange market is a place for the buyers and sellers of the shares and securities. Though relatively young, the Guyana Stock Exchange Market provides some essential opportunities for saving and multiplying one’s assets. It is the newest exchange in the Caribbean Community (CARICOM) bloc of countries.
To truly understand how this system works and the benefits that can be obtained, one must first understand certain basic terminologies, in particular what the stock market is and its true purpose.
The capital of a company is divided into shares. Each share forms a unit of ownership and is offered for sale so as to raise capital for the company. When you own more than one share in a company or several companies, these are called stocks, because stock generally refers to a portfolio of shares.
A stock market allows owners of stocks and shares to dispose of them at a fair price; it allows new investors to buy them at a competitive rate and it allows companies to sell new shares to finance their businesses’ growth.
People buy stocks and shares with the expectation that they will be able to sell them again; unlike companies who generally issue stocks with no expectation of having to buy them back.
In the context of Guyana, the total volume of savings is quite high, but it is held mainly in cash or short-term bonds. A bond is a debt investment in which an investor loans money to an entity (typically corporate or governmental) for a defined period of time at a variable or fixed interest rate.
The Guyana Stock Exchange Market opened for business in July 2003. The establishment of the stock market directly realizes an objective of the Guyana Poverty Reduction Strategy Paper, namely to “encourage and/or support the private sector to raise local financing for investment.”
The entity responsible for organizing and supervising the Guyanese stock market is the Guyana Association of Securities Companies and Intermediaries Inc. (GASCI).
The entity is of the opinion that the total volume of savings in Guyana can be mobilized via the stock market. This can finance the growth of the economy through the purchase of new shares issued by companies, thereby leading to investors on the market getting a better return on their savings as well as the growth of the economy. It said that this will facilitate investment since the effect of raising capital on the exchange reduces the cost of borrowing.
GASCI consists of four member firms which trade (i.e. provide broker services for customers who wish to buy and sell shares) on the stock market and these are Trust Company (Guyana) Ltd, Guyana Americas Merchant Bank Inc, Beharry Stockbrokers Ltd and Hand-in-Hand Trust Corporation Inc (formerly GNCB Trust Corporation Inc). The latter three are also represented on the GASCI’s Board of Directors.
Giving some insight on how the Guyana stock market works, the GASCI said that investors give orders to buy or sell to brokers a part of GASCI. The brokers execute the orders by matching them against outstanding orders on the electronic order book, or, if there is no matching order, they leave their new order exposed on the book to await a matching incoming order as and when it arrives.
Although the basic functions of the market are extremely simple, they rely on an infrastructure of procedures, rules, personal skills and regulation which are more complicated.
The market is, therefore, of wider significance than a mere trading facility; it bears witness to the capacity and functionality of the financial and regulatory system as a whole and as such contributes to the wider Poverty Reduction Strategy Paper (PRSP) policy area to “enhance the macroeconomic framework”.
According to published articles of GASCI, there are clear advantages to being a part of the local stock market. The advantages are more obvious to businesses than they are to individuals who might be looking for better returns for their money. The biggest draw for Guyanese businesses is the extent to which participation in the stock market lowers the cost of borrowing money and removes the obligation of having to make obligatory periodic payments to a creditor.
By allowing others to own its shares, a company gets access to money and only makes payments in the form of dividends if it makes a profit and decides to distribute some or all of it. Decisions on dividend distribution are left to the discretion of company directors which puts the company in the driver’s seat. In contrast, if a company borrowed money from a bank, it would have to make periodic payments at specific times placing greater restrictions on how it uses its money and the amount available for use.
For individual Guyanese, the stock exchange represents an alternative way of saving money. Instead of depending exclusively on bank deposits, Guyanese could hold some of their money in the form of stocks. Many do so since payment of dividends and the appreciation of the stock price are often greater than the interest earned on bank deposits.
Stock ownership comes with the added benefit of dividend distributions to resident Guyanese not being subject to withholding taxes. Even though stock ownership comes with a greater risk of losing money, it is an option that is worth pursuing in light of the tax benefits that accrue.
