CONTENTS OUR VISION To be an effective regulator of the capital market in which stakeholders have confidence. 1 Letter of Transmittal OUR MISSION 2 Functions of the Commission The Trinidad and Tobago Securities and 4 Message from the Chairman Exchange Commission is the regulatory agency for the Securities Industry. We administer 10 General Manager’s Remarks the Securities Industry Act to protect the investor, promote integrity and transparency and foster the development of the capital 14 Management Discussion market through a committed and competent team of professionals. 15 I Protecting the Investing Public 24 II Promoting Efficient and Orderly Markets 26 III Improving Business Capability 29 Appendices 45 Auditors’ Report 46 Financial Statements 55 Additional Information Letter of Transmittal January 3st, 2007 The Honourable Patrick Manning Prime Minister and Minister of Finance Whitehall 9 Maraval Road PORT OF SPAIN Dear Honourable Prime Minister, In accordance with the provisions of Section 20() of the Securities Industry Act, 1995, I submit the Annual Report of the Trinidad and Tobago Securities and Exchange Commission for the financial year ended September 30th, 2006 together with a copy of the Annual Audited Statement of Accounts certified by the auditors. I would be grateful if you could advise me when the report is laid in Parliament, as the Act requires that copies be made available to the public after it has been so laid. Yours faithfully, OSBORNE NURSE Chairman Functions of THE Commission The Trinidad and Tobago Securities and Exchange Commission (the Commission) was established by the Securities Industry Act, 1995 (the Act). It is an autonomous body whose role is to provide for the regulation of the securities market in Trinidad and Tobago and for related matters. The main functions of the Commission are outlined in Section 5 of the Act as follows: • Advise the Minister of Finance on all matters relating to the securities industry; • Maintain surveillance over the securities market and ensure orderly, fair and equitable dealings in securities; • Register, authorize or regulate in accordance with the Act, self-regulatory organizations, securities companies, brokers, dealers, traders, underwriters, issuers and investment advisers, and control and supervise their activities with a view to maintaining proper standards of conduct and professionalism in the securities business; • Protect the integrity of the securities market against any abuses arising from the practice of insider trading; • Create and promote such conditions in the securities market as may seem to it necessary, advisable, or appropriate to ensure the orderly growth and development of the capital market. 3 From left to right: Shelton Nicholls, Commissioner | Vishnu Dhanpaul, Commissioner | Bridgid Annisette-George, Commissioner | Osborne Nurse, Chairman The Commission “experienced an extremely active year in each of the three principal areas involved in the active regulation of the market” Osborne Nurse Chairman Message from THE CHairman The past year has been one filled with great change and challenges as well as their associated rewards, as the Commission continues to develop and fulfill its mandate of the regulation of the capital markets in Trinidad and Tobago. MarKet DEVELopments year-on-year rate of inflation had increased from 7.6% in December 2005 to 9.6% in During the year under review, the level of October 2006. activity on the Trinidad and Tobago Stock Exchange (TTSE) continued the decline that One of the principal reasons for the decline started in May 2005 and continued throughout in the index and in stock market activity the financial year, as well as into the first has been identified as the decision by quarter of the 2006/007 financial year. the Inspector of Financial Institutions in December 2004 to caution insurance and 5 The Composite Index of stock market prices pension funds about their need to adjust their reached 1,07.64 on December 3st, 200 portfolio balances to the prudential norms, and increased to 1,3.9 on May 17th, 2005. enshrined in the regulations, which called At the end of the 200/005 financial year for a maximum of 50% of such portfolios in September 2005, the Index recorded to be held in investments in equities. At the a value of 1,08.86, an increase of 0.76% time of this caution, some 25 pension funds, since December 2004 and 12.8% since the representing over 60% of the funds under previous year end, September 200. management held in excess of 60% of their portfolios in equities. The Index closed at 1,067.38 on December 3st, 2005 and at 868.78 at the Commission’s Since institutional investors such as pension year end of September 30th, 2006. By funds are estimated to account for over 80% September 30th, 2006, the Index had of demand on the Exchange, their consequent declined by a total of 29.9% since its peak in and effective withdrawal from the market has May 2005. contributed to the depth and length of the decline that has been experienced. The decline in stock market activity occurred although Trinidad and Tobago continued to The correction that has taken place may show strong economic growth, albeit with however be considered necessary and growing inflationary pressures. GDP growth expected following the market’s remarkable in 2005 was approximately 12%, but the bull run over the period 2002 - 200, during which the index increased by 147.42%, from the Commission delivered to the Minister Similar consultative processes have been 3.34 on January 2nd, 2002 to 1,07.6 of Finance its recommendations for the undertaken with Underwriters and Issuers on December 3st, 2004 and market comprehensive revision of the Securities of asset backed securities with similar capitalization of listed companies more than Industry Act (SIA). The proposed Draft positive cooperative results. doubled, despite the absence of significant SIA 2006, which was submitted in January new listings (other than cross listings) and 006, together with the associated By- One particularly encouraging development new capital issues. Market capitalization was Laws, is based on the recommendations arising out of these consultative processes $8.1 billion at the end of 2002 and $117. of the Stikeman Elliot Report and is the movement by Underwriters billion as at June 30th 2005. At September provides for enhancing the protection and issuers of asset backed securities 30th, 2006, the market capitalization was of investors by strengthening the to organize a representative group, which may result in the formation of a $88.0 billion. reporting requirements of issuers and the self regulatory organization under the regulatory powers of the Commission. Key Securities Act. This is a development Market activity in the major regional markets improvements have been recommended that the Commission welcomes and of Jamaica and Barbados was also extremely in the Commission’s power to examine encourages. sluggish, with Jamaica and Barbados both market actors, to regulate mutual funds, to showing declines in their respective index of strengthen reporting requirements and to (b) Market Surveillance and Analysis 14.55% and 13.66% for the period October impose larger penalties for contraventions With the introduction of automated st, 2005 to September 30th, 2006. On the of the Act. trading on the Trinidad and Tobago Stock other hand, capital market activity as well as Exchange in March 2005, the Commission 6 economic growth, has continued to be robust Of particular significance has been the undertook to upgrade its capacity to in global markets. In the United States, the strengthening of the provisions for the monitor the exchange’s electronic trading S&P 500 Index increased 8.7%, the Financial regulation of Collective Investment systems. The Commission has built on Times Stock Exchange (FTSE) 100 in the Schemes (CIS). Indeed, in view of the its access to the trading results through a United Kingdom by 9%, the Deutsche Aktien importance of this segment of the market terminal similar to that available to brokers Xchange (DAX) in Germany by 18.% and which is poorly regulated at present, the and traders and has developed a capacity the Nikkei in Japan by 18.88%, for the same Commission has engaged in a number for online technical analysis of trading one year period. of consultations with CIS sponsors and data and for further in-depth analysis managers with a view to securing their of particular trades. This facility, which ReguLation observance of the CIS By-Laws regulatory is called the Securities Market Watch proposals–issued as Guidelines–prior to (SMW), is designed to give Commission The Commission experienced an extremely the passage and coming into force of the staff the capacity to identify and analyze active year in each of the three principal areas new Act. daily trading patterns on the day involved in the active regulation of the market following trading days. The Commission –the development of the legal and regulatory We are pleased to recognize the high is continuing development efforts on framework, the monitoring of market activity level of cooperation and support that SMW with a view to giving it the capacity and behaviour, as well as the conduct of these proposals have received from the of analyzing such trading patterns within investigative and enforcement actions. market participants, and look forward minutes of their execution. to a continuing process of broad based (a) Securities Legislation consultation on CIS as well as other The SMW is part of the Commission’s At the beginning of the second quarter, areas of regulatory development. wider system for online analysis of market and of economic data including the move has contributed significantly to the presentation and analysis of information achievement of two of its key objectives: on the Mutual Funds industry. The the strengthening of its public image and the Commission is very optimistic about the improvement of the quality of facilities for its utility and value of these technological staff by securing new appropriate premises.