Industry Overview

This Securities exchange industry provides physical trading floors or electronic marketplaces to facilitate
the buying and selling of stocks, bonds, stock options, bonds, futures or commodity contracts. It
includes exchanges and electronic communication networks.
The primary activities of companies in this industry are:
• Securities exchange operations
• Share registry operations
• Clearing and Settlement
• Electronic Communication Network (ECN) operations
• Market maker operations

The key products and services provided by participants in this industry include:
 Clearing and Transaction Services
 Market Data
 Listing services
 Regulation
 Memberships and Licenses

The key drivers affecting this Industry are:

 Economic growth
 Listed company earnings
 Stock market Capitalization
 Investor Confidence

These factors all have influence over the volume and value of stocks traded on the Exchange which
drives revenue and profitability.

The key risks for companies in this industry include:

 Structural Risk (risk arising from within the industry itself) Barriers to Entry, Competition,
and Volatility of the Industry. In recent years, alternative trading systems (“ATS”) such as
BATS Exchange and Direct Edge have been established to provide competition to incumbent
exchanges. The success of ATS could affect the profitability of securities exchanges as the
exchanges reduce fees to maintain market share.

 Growth Risk (risks arising from the expected future performance of the industry). Key
drivers of exchange market growth include: (1) regional economic growth potential, (2)
retail and institutional investor sentiment, and (3) product innovation.
  Sensitivity Risk (risk arising from forces external to the industry): The BSE’s business is
directly affected by economic, political and market conditions in that are beyond the its
control and may affect its performance. Other external risks include broad trends in
business and finance, concerns over inflation and changes in government monetary policy
and foreign currency exchange rates, the availability of short-term and long-term funding
and capital, the availability of alternative investment opportunities, the availability of cash
for investment by mutual funds and other institutional as well as retail investors, changes in
the level of trading activity, changes and volatility in the prices of securities, changes in tax
policy, the level and volatility of interest rates, legislative and regulatory changes.

Global Exchange Industry

Globally, exchanges fulfill a number of different functions, including transparency and liquidity, to the
financial markets. Capital raising and secondary-market pricing remain the key function for the securities
and securities options segments of exchanges globally. Management believes the performance of the
global exchange market is an accurate proxy for domestic and international economic indicators. Along
with central banks, exchanges have remained the most important provider of liquidity to the global
financial system.
In the past few years, securities and derivative exchanges have themselves become listed entities. The
creation of publicly-traded securities and derivatives exchanges is still a relatively new phenomenon.
While some exchanges have transformed themselves into public companies, the industry still includes
numerous private companies and mutually-owned, not-for-profit entities. In addition, in recent years
there have been several mergers of stock exchanges (such as the merger of NYSE and Euronext in April
2007) and examples of cross-ownership between international exchanges seeking to form alliances.
Management anticipates that the consolidation trend will continue and that additional mergers are
likely to take place over the coming years, and believes that this may allow the Investment Manager to
leverage its demonstrated expertise in this sector.

Trends

The industry has seen a lot of consolidation with acquisitions by major players. This will continue as scale
is vitally important to the industry and will drive competition for trades over the next five years. Players
will continue to experience pressure from electronic communication networks and other electronic
exchanges as well as increased regulation.

The Trend towards Consolidation and Demutualization

The rapid evolution of the global capital markets has supported an equally rapid expansion of the global
exchange sector. A variety of factors have contributed to the “go-public” momentum amongst global
exchanges, not the least of which has been the realization and monetization of private ownership
interests at high and rising P/E multiple levels.
Competition
There are 10 stock exchanges in the Caribbean, including:
1. Bahamas Securities Exchange
2. Barbados Stock Exchange
3. Bermuda Stock Exchange
4. Bolsa de Valores de la República Dominicana
5. Cayman Islands Stock Exchange
6. Eastern Caribbean Securities Exchange
7. Haitian Stock Exchange
8. Jamaica Stock Exchange
9. Latin American International Financial Exchange
10. Trinidad and Tobago Stock Exchange

The competition for new listings and investor trading is intense. Some of the other exchanges (such as
TT&T in particular) have seen rapid growth in recent years, in contrast to the BSE’s decline in trading and
commission income.

Regional Alliances
The Barbados Stock Exchange is among the four major regional Caribbean stock exchanges. The other
three being the exchanges of Jamaica, the Eastern Caribbean, and Trinidad and Tobago. The BSE is the
third largest stock exchange in the Caribbean region. The BSE along with officials from Jamaica and
Trinidad and Tobago are working to integrate these stock exchanges into a single unit known as the
Caribbean Exchange Network (CXN) The Trinidad and Tobago exchange has mooted the establishment
of some form of association with the U.S. or Canadian based
Despite being a relatively new exchange (launched in 2003), the Trinidad and Tobago Stock Exchange
(TTSE) has become the leading stock exchange in the Caribbean region (by market capitalization
estimated at US$15 billion). the Trinidad and Tobago stock exchange caters mostly to the strong
financial position of many Trinidadian and Tobagonian companies. As a member-state of CARICOM
several companies from Barbados, Jamaica, and the Eastern Caribbean Securities Exchange also cross-
list their stocks onto the Trinidad and Tobago Stock Exchange.

Current Industry Conditions

Investor Confidence

It had long been accepted that Barbadians tend to be risk averse when it comes to investing in equities.
The BSE believes this due, in part, to a lack of knowledge about investing and misconceptions that exist
among the general public. To address this, the Barbados Stock Exchange introduced an educational
programme to increase awareness and knowledge of the market.
These efforts are have been challenged by the poor performance of the market, past high rates of
inflation and interest rates, and a small number of companies to select for investment. The number of
companies listed on the BSE has dropped because of takeover and merger activity in the last couple
years, as well as some de-listings. In 2008 market capitalization fell by 28% from BDS19 billion to
BDS13.5bn. At June 30, 2010, market capitalisation was BDS11.3bn vs 12.5bn in the prior year (10%
decline)

Trading Activity
The following table summarizes the trading volume and value on the BSE over the past 10 years.

Barbados Stock Exchange

Trading volume and value
Year Volume (shares) Value (BBD)

1999 12.4m 40.6m

2000 30.2m 95.8m
2001 9.1m 20.4m
2002 514.5m 1,654.0m
2003 56.6m 155.3m
2004 122.3m 459.1m
2005 44.7m 100.7m
2006 643.4m 2,042.2m
2007 162.4m 597.3m
2008 78.5m 268.8m
2009 10.4m 49.5m

.
 Barbados Stock Exchange
Trading volume and value
2,500

$2,042

2,000
$1,654

1,500

1,000

$597
$459 643
500 515
$269
$155
$96 $101
$41 $20 162 $50
122 79
12 30 9 57 45 10
-
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

The first half of 2010 was a challenging one for the Barbados Stock Exchange (BSE). It was characterized
by increases in total trading volume but decreases in total trading value when compared to the
corresponding period in 2009. The disparity between trading volumes and values was the result of the
continuing decline in most of the listed companies’ share prices; a trend which began in September of
2008. The number of companies whose share price declined in the first half of 2010 outnumbered those
which advanced.

For the half year period, total trading volume increased by 24% while total trading value fell by 22%. It
should be noted however that the transactions occurring in the Put-Through Market of Cave Shepherd
and Company Limited had a significant effect on trading activity for 2009. These transactions accounted
for 2,012,281 or 39% of the volume traded and $14,086,967 or 52% of the value traded for 2009. If the
impact of these Put Through transactions were excluded there would have been an overall increase in
trading volume of 103% and trading value of 62% for the first half of 2010 when compared with 2009.