The ability to capture, maintain and monitor key financial stability/macro-prudential indicators is essential in the analysis and evaluation of the securities market. This article will discuss the Micro and Macro Prudential Reporting Framework (MMRF), which is the tool utilised by the Trinidad and Tobago Securities and Exchange Commission (TTSEC) to capture key metrics and is used to conduct analysis that evaluates the health, soundness and vulnerabilities of the local securities market.
As per Section 6(l) of Securities Act, 2012 (SA 2012), the TTSEC is required to assess, measure and evaluate the risk exposure in the securities industry. The administration of the MMRF also ensures that the TTSEC complies with the Principles prescribed by the International Organisation of Securities Commissions (IOSCO). IOSCO is the international body that brings together the world’s securities regulators and is recognised as the global standard setter for the securities sector. The utilisation of the MMRF ensures that the TTSEC complies with Principle 6 as prescribed by IOSCO.
As a result of the global financial crisis of 2008-2009, Principle 6 was incorporated into IOSCO’s regulation, since at the time of the crisis, the traditional regulatory functions of securities regulators were not tailored to mitigate the emerging systemic risk, which threatened the stability of the evolving global financial system. As such, this Principle seeks to address the need for securities regulators to play a role in addressing systemic risks and maintaining financial stability.
On September 16, 2016, an Order was issued by the TTSEC, which requires registrants to complete and submit the applicable forms in the timeframe specified. This data is supplied via 11 forms. The forms are required to be submitted 30 days after the end of each calendar quarter. Each form captures specific information based on the business activities of registrants and are listed in Table I.
Failure to submit the relevant MMRF forms is a breach of the Commission’s Order. As such, Registrants can be charged with administrative fines up to a maximum of five hundred thousand dollars ($500,000) in accordance with Sections 156(1) and 165(2) of the SA 2012.
The MMRF continues to be one of the most critical tools utilised to analyse the securities market. The data supplied is used to produce reports containing aggregate market information, such as the Securities Market Bulletin which is produced biannually. To date the Commission has received quarterly data from July 2016 and through analysis of this information have produced five issues of the Securities Market Bulletin. Data collected from the MMRF are related to the following business activities of registrants:
•Collective Investment Schemes (CISs)
•Repurchase Agreements (Repos)
•Private Placements/Limited Offerings
•Over the Counter (OTC) Trading
Through the analysis of the MMRF data, changes and developments in the major segments of the securities market can be monitored. Observations are also made on the interconnections which refer to relationships and/or dependencies among market participants to facilitate financial transactions. Table 2 highlights some key statistics collected from the MMRF on the securities market over an 18-month period (March 2019 to June 2020).
The MMRF data is also being used in the development and implementation of the TTSEC’s Stress Testing Framework, which forms an integral part of its Risk-Based Supervisory (RBS) Framework.
The Stress Testing Framework is an important tool that applies numerical techniques to simulate specific and hypothetical scenarios which gauge the vulnerabilities of individual registrants and the market as a whole to potential risks.
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