THE EDITOR, Sir:

THE FINANCIAL Services Commission (FSC) notes the contents of an article published in the Financial Gleaner of Friday, May 29, entitled, 'FSC sounds repo warning'.

The title of the article is in our view, unfortunately worded. Not only is it factually misleading, but it also does not do justice to the position of the FSC regarding the operations of securities dealers.

It should be made absolutely clear that the FSC has not sounded any 'warning' against investing in repurchase agreements, referred to as 'repo' in your headline.

Repo important

The FSC in 2004 introduced new capital requirements for licensed securities dealers which, among other things, stipulated that capital be provided against risks inherent in the business operations of these entities. This is a standard feature of financial sector supervision everywhere.

In fact, the FSC recognises the utility and benefits of the repo business to the Jamaican financial marketplace, bringing together as it does, the interests of investors, intermediaries (such as securities dealers) and issuers (such as the Government of Jamaica). However, notwithstanding the usefulness of the repo business conducted by securities dealers, the FSC also recognises that as the securities industry matures, there is a need for securities dealers to diversify their product base so as to continue to guarantee income growth and preserve the stability and integrity of the financial system.

Registration ofunit trusts

This is the context within which the FSC has, over the past several years, engaged its licensees in progressive and constructive dialogue on policy initiatives which complement or facilitate such product and/or portfolio diversification.

In this regard, we would like to point your readers' attention to the FSC's imminent decision to resume the registration of unit trusts and unit trust products. The FSC is at an advanced stage of preparing regulations as a precursor to lifting a long-standing moratorium on unit trusts, which was imposed during the 1990s.

Investor awareness

However, this is only one of a number of policy initiatives which are being considered and which should progressively allow for product diversification and capital market development.

The FSC has also been consistent in its message that investor awareness and public education about securities is an essential co-requisite for ensuring that financial market integrity is maintained in an environment of product development and diversification.

Accordingly, as the array of available investment products is broadened, investors must also be informed as to the risk-return tradeoff inherent in each type of product in order to enable them to make proper investment decisions.

The FSC will continue to play its role by developing, maintaining and improving prudential and market-conduct standards to ensure the safety and soundness of individual institutions and of the securities industry as a whole.

We hope that the information provided will help to remove any misunderstanding which might have been generated.

Rohan Barnett

Executive director

Financial Services Commission