How To Buy Stocks On The Jamaica Stock Exchange
The Jamaica Stock Exchange – Introduction
Wait, what is the Jamaica Stock Exchange? Is it that Stock Market thingy, Wall Street?
Alright so for starters, only publicly traded companies can be bought on the Jamaica Stock Exchange (JSE). A publicly traded company is any commercial entity that makes a percentage of its ownership available for purchase through an institution known as a Securities Dealer. In Jamaica, the primary securities dealer is the Jamaica Central Securities Depository Limited (JCSD). Strictly speaking, a Securities Dealer is any company (or person) authorised to deal in the buying and selling of securities, more on this later. The JCSD is basically an institution that holds the securities that are traded.
A stock, otherwise known as a share, is simply a legal certificate that represents a portion of the company’s ownership. In Jamaica, the institution that deals in the regulation of companies that go public is the Financial Services Commission (FSC). The Jamaica Stock Exchange or “the JSE”, is not unlike the famous New York Stock Exchange, just smaller. Through the offices of the JSE, companies may “list”, that is, make Ordinary or Preference Shares available to the public for purchase.
An Ordinary share differs from a Preference Share in that, it has higher associated risk. We will investigate this further in a subsequent article. In contrast to ordinary shares, preference shares tend to have predefined returns, such as 7% per year or 9.5% per annum and retain their value over longer periods of time. Ordinary shares on the other hand tend to have more volatile prices, often the price of an ordinary share will change multiple times in a single business day. This is due to an activity called trading, where one person buys a few shares with the intent to sell them at a higher price later. Like commodities, share prices are often driven by supply and demand. However, it must be noted that earnings strongly impact a company’s stock price. The effect of earnings must not be underestimated. Again, we will get into earnings and other terms in a subsequent article. For now, you can take it that earnings are the money that each share earns.
Opening an Account:
In Jamaica, shares are bought primarily through Brokers/Brokerage Houses. Brokerage houses are securities dealers. They have a license (from the FSC) to buy and sell shares on behalf of regular people like you and me. In many cases, commercial and merchant banks will offer brokerage service through a separate arm. Any well informed Teller can direct you to someone who works in that arm of the financial institution (if they have one) once you express your interest in acquiring shares. Alternatively, you may approach an institution whose sole business is in share trading and other money market instruments.
To open the account, you will need to provide the following documents:
- Tax Payers Registration Number (TRN)
- Proof of identification (such as, a passport, driver’s license or national voters ID) and
- Proof of your address. Any bill or letter with your name and address on it, received no later than three months earlier, will do. You may also choose to use a recent utility bill as it fits the previously mentioned criteria.
Some institutions require that you open the account with no less than Jamaican ten thousand dollars (Ja$10,000), others might require more or less.
Once you have all the above, opening the account will simply be a matter of signing a few dotted lines.
Purchasing your first shares:
Once the account has been opened, and activated, you may choose to purchase shares in any of the over fifty (50) companies on the Jamaica Stock Exchange. It is HIGHLY recommended that you speak with a financial adviser prior to making any investment decision. While you may choose to purchase shares in a company simply because you like the company, or because you have a good feeling about them, it is not advisable unless you have sufficient experience buying equities…What? What are equities you say? Exactly.
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In Jamaica, you are required to purchase a minimum of one hundred (100) units of shares in a company. We can call this a block of shares. You will only be able to place an order with your Broker if you are requesting 100+ shares. As an example, let us say there is a company, XYZ Jamaica Ltd, and you wish to purchase shares in that company. Let us further assume that XYZ’s shares sell at $1.00 per share (this is not unrealistic). If you wish to purchase shares in XYZ Limited then you must have enough funds to purchase 100 XYZ shares and cover the expenses of the trade.
Fees, Fees, Fees:
All transactions on an equity account with regard to stock purchases, and sales, attract a commission fee for the Broker, a Trade Fee, a CEST Fee, and General Consumption Tax (GCT). Commissions range from Broker to Broker so it is always best to find out what they charge. Typically, the commission is going to be a percentage of the value of the transaction. GCT is, at the time of this writing, sixteen point five percent (16.5%) and is charged on the sum of the fees. As a safe bet I tend to calculate the amount it would cost me to own a block of shares in a particular company using the following formula:
Principal costs = (Number of Units desired * cost per shares)
Flat costs = Principal cost + commission
Final Cost to get my shares = Flat Cost + 5% of Flat Cost.
Note well, my formula normally gives a higher value than what it actually cost me but I prefer to overestimate the cost than to underestimate it.
As an example: If I want to buy 1000 shares of Grace Kennedy Company Limited and each share/stock is selling for 50 dollars, then my principal costs is 50,000.
- My Principal cost is: 1000 shares * $Ja 50.00 = $Ja 50,000.00
Next I add commission of say $Ja 500 to get my flat costs.
- My Flat cost is: Principal + commission = $Ja 50,500. 00
Next I have to add 5% of the flat cost which will cover all those fees I mentioned earlier. 5% of $50,500 = $Ja 2,525
- Finally: The total I would pay for my 1000 GK shares is $Ja 50,500 + $Ja 2,525 = $Ja 53,025.
The Bottom Line
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Purchasing shares/stocks in Jamaica is a relatively simply process:
1. Make a conscious decision to act on your interest in owning shares.
2. Research the available securities dealers and choose one to partner with.
3. Open your Equity Account.
4. Do your own research then seek your Broker’s and/or Financial Advisers’ advise on which stocks are a good buy.
5. Estimate the cost you will have to pay to acquire your desired number of units.
6. Fill out the necessary forms giving permission for your Broker to place the order (or do it yourself online).
The opinions expressed in this article are solely those of the authors and are in no way intended to reflect management’s views. Further, all information provided on Caribbean Value Investor is strictly for educational purposes. Caribbean Value Investor, its Directors, Employees and Stakeholders accept no liability in respect to gains or losses experienced by readers.