Broader economic growth and development can be one of the results of more residents investing in listed companies through their national stock exchange, according to a report by the World Federation of Exchanges.
And improved financial literacy is one of the key catalysts for increasing investor interest.
The survey findings have been hailed by Greg Wojciechowski, chief executive officer of the Bermuda Stock Exchange, as supportive of what the BSX is trying to achieve through its “Own Your Own Share of Bermuda” investor education campaign.
The WFE report, entitled “Enhancing retail participation in emerging markets”, was published this month.
Mr Wojciechowski said the report backed the notion that “retail investors play an important and integral part in the legitimacy and perceived relevance of Bermuda’s stock market”.
The report reviews existing academic literature on the subject and analyses data from 14 emerging market exchanges to assess what levers impact levels of retail trading.
It looks at a variety of factors such as transaction costs, tax rates and financial literacy programmes and how these factors affect the breadth, or number of individuals investing, and the depth, the level of trading activity, of the retail investor pool. The report also contains several case study interviews that support and expand the results of the statistical analyses.
Mr Wojciechowski said: “Among the findings, the report indicates a positive relationship between financial literacy programmes, such as investor education programmes, and both breadth and depth of trading, further supporting the premise that financial literacy is important for improving not just levels of retail activity but also the quality of activity.
“The report also notes that the existence of brokers who are willing and able to effectively service retail investors and contribute to broader literacy objectives is, in the report’s words, critical.”
He added: “The fact that the research clearly corroborates what we have been saying through our initiative over the last six months is very encouraging.”
The BSX campaign has urged residents to learn more about the investment opportunities available through the exchange.
And the report also found potential benefits for greater levels of investment by a community in its own national companies.
“For instance, the report conclusion noted that from a social perspective having individuals directly invested in the stock market may contribute to a greater democratisation of finance, and that well-functioning exchanges contribute positively to broader economic growth and development,” Mr Wojciechowski said.
“It goes on to say that an exchange should not be viewed as something remote from ordinary citizens but rather as contributing positively to an individual’s ability to realise their aspirations.
“By enabling broad-based wealth creation through financial inclusion, the exchange achieves a potentially higher degree of public legitimacy. These are points we raise regularly in the local community and we are heartened by the fact that they are resonating globally.”
In addition to looking at the impact of investor education programmes, the report looked at a number of efforts used to enhance levels of retail investor participation including, increasing awareness and outreach, changing the cost structures to reduce the cost of participation, enhancing the availability of information about the market and the companies listed on the market and the introduction of new products such as Exchange Traded Funds.
Mr Wojciechowski added: “The BSX remains committed to Bermuda’s retail investor base and will continue to push for improvements both internally and externally to drive greater market participation.
“For our part we will continue to press forward with our investor education initiative, while simultaneously increasing awareness through community outreach.
“This will include participation in the International Organisation of Securities Commissions’ inaugural World Investor Week, October 2 to 8.
“The BSX also remains committed to providing investors with timely, accurate company data through Bloomberg, Bermuda’s daily paper and our website www.bsx.com.
“Additionally, we will continue to work with the local brokerage community, government and other financial institutions to look for potential cost savings and the development of new products and services aimed at attracting retail investors.”
The complete WFE report can be found on the BSX website, www.bsx.com