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Oran Hall Stockbroking companies as facilitators of personal financial solutions

Stockbroking companies create and facilitate short-term and long-term financial solutions for their clients by buying and selling securities for them as their agents, but they may also function as principals, in which case, they buy and sell securities for their own account.

They are public companies, some listed on the stock exchange, that trade for profit for the benefit of their shareholders. The 15 companies in the Jamaican market operate in several capacities. They are members of the Jamaica Stock Exchange, cambio dealers, traders of foreign currency-denominated and Jamaican currency-denominated securities, investment advisers, and some are primary dealers.

As members of the Jamaica Stock Exchange, they trade in listed equities, preference shares and bonds on behalf of their clients on the Jamaica, Barbados, and Trinidad & Tobago stock exchanges. They also launch new public equity and loan issues, thereby giving investors new opportunities to realise their financial goals. Additionally, they prepare prospectuses, which give investors critical information to assess the quality of new offerings and manage new issues.

Those that are primary dealers deal in the primary market in Government of Jamaica securities such as treasury bills, repurchase agreements, and US dollar-denominated bonds, but they also trade in the secondary market. Those that are licensed as cambio dealers by the Bank of Jamaica trade foreign currencies.

Stockbrokers also trade in and market a wide range of other securities, such as commercial paper, foreign currency-denominated securities, unit trusts, and mutual funds. They facilitate investing in tax-free long-term savings accounts and those that are licensed as cambio dealers by the Bank of Jamaica trade foreign currencies.

To be better equipped to offer suitable advice and solutions to their clients, stockbroking companies engage in extensive research, some having dedicated research departments.

In any case, brokers are expected to give guidance to their clients to the extent that is required. It is now general practice for them to have their clients do even elementary risk-profile exercises to be better able to determine what is suitable for them although ultimately, it is the client that should make the final decision.

As agents, stockbroking companies charge their clients commissions for the transactions that they execute on the stock exchange. The rates they charge are determined by each broker independent of what other brokers charge, but clients, especially large ones, may negotiate the commission they pay. For other transactions, their income is generally derived from the difference between the buying and selling prices of the securities.

Stockbroking companies are regulated by the Jamaica Stock Exchange, JSE, of which they are member-dealers. They are required to meet stringent tests to qualify to trade on the exchange and to satisfy many requirements on an ongoing basis to be able to continue trading on it. Flouting the rules of the stock exchange can have serious consequences.

Stockbroking companies are regulated by the Financial Services Commission, which has responsibility to license them and important personnel and to register others. This ensures that they maintain minimum levels of financial soundness and that the personnel engaged to serve clients are people of integrity who are qualified and competent to serve the public and give the required guidance in making suitable investment decisions.

Stockbrokers have established procedures for opening client accounts. Their client-agreement form, which is available at their offices or online, captures vital information on the identity of clients and their sources of funds as well as on their investment objectives.

Investors can learn much about individual stockbrokers by accessing their websites and the publications, which some make available to the public. The telephone directory also provides some information on them, and some information can be gleaned from the website and publications of the Jamaica Stock Exchange.

There are many ways in which the clients of the stockbroking companies are protected. The JSE monitors the financial state of the brokers, who are not allowed to commingle the funds of their clients with theirs. Additionally, the securities that the clients buy are registered in their nominee accounts at the Jamaica Central Securities Depository, a wholly owned subsidiary of the JSE that facilitates the electronic registration of securities in nominee accounts.

Further, the JSE Compensation Fund compensates the clients of member-dealers who lose money as a result of misappropriation of funds or fraudulent misuse of securities or documents of title to securities or other property by member-dealers or any of their directors or employees.

Stockbrokers help their clients to develop a wide range of personal financial solutions to meet their unique needs through the wide range of securities and services that they offer. What they cannot do is guarantee that the solutions will have the desired results in every case and situation.

Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel. Email:

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