25 June 2007
The Channel Islands Stock Exchange (CISX) has recently seen a significant increase in listings of specialist debt securities - securities which, because of their nature, are normally bought and traded by a limited number of investors who are particularly knowledgeable in investment matters - such as most eurobonds.
Investment banks and lawyers in the City and elsewhere have come to appreciate that the CISX is more responsive and cost-effective than many competitors' stock exchanges. At the same time it offers a reputable listing.
Importantly, debt securities listed on the CISX are able to qualify for the quoted eurobond exemption, meaning that issuers are not required to withhold UK tax on interest paid on the securities. HM Revenue & Customs has confirmed that this will remain the case after Schedule 26 of the Finance Bill 2007 comes into force, amending the definition of a 'recognised stock exchange'.
The CISX launched in October 1998. It is based in St Peter Port, Guernsey, and provides a listing facility and screen-based trading. It is within an Organisation for Economic Cooperation and Development (OECD) jurisdiction and in the European timezone.
Since the CISX commenced operations it has grown rapidly, with more than 2,000 listings approved by 31 May 2007. Of these, approximately 40 per cent are specialist debt securities.
The implementation in EU member states in 2005 of the EU Prospectus and Marketing Abuse Directives gave rise to increased interest in the listing of securities on the CISX. The Channel Islands are not within the EU and so the CISX is not a regulated market for the purpose of the directives, which do not apply by reason only of a listing on the CISX.
Advantages of a CISX listing
Advantages of a CISX listing include:
- competitive pricing, including a one-off listing fee and no annual fees for specialist securities;
- a commitment to speedy turnaround and consistency of approach - the CISX aims to comment within 48 hours on initial documentation;
- a responsive and approachable market authority that meets daily to consider listing applications;
- international standards of issuer regulation;#a pragmatic approach to disclosure requirements;
- a willingness to work with the issuer and its advisers to accommodate innovative structures;#concurrent trading times with London;
- a streamlined listing process for specialist debt securities;
- it is within Europe and the OECD, but not an EU-regulated market; and
- International Accounting Standards (IAS) or other recognised standards are acceptable for financial statements, and there is no obligation to use the IAS.
The CISX has a significant number of international recognitions, including:#it is regulated by the Guernsey Financial Services Commission, which is a member of the International Organisation of Securities Commissions (Iosco);
- it is a recognised stock exchange under the UK Income and Corporation Taxes Act 1988;
- it has been approved by the UK Financial Services Authority as a designated investment exchange within the meaning of the Financial Services and Markets Act 2000;
- it is an affiliate member of Iosco;
- it is designated by the US Securities and Exchange Commission as a designated offshore securities market, under Regulation S of the Securities Act of 1933;
- it is officially recognised by the Australian Stock Exchange;
- it is registered with the World Federation of Exchanges as a 'corresponding market'; and#it is a member of the European Securitisation Forum.
Before making an application for listing, the CISX requires the applicant to appoint a sponsor through which the listing process will be conducted. The sponsor must be a member of the CISX.
Listing of specialist securities
The CISX has a favourable listing regime for specialist securities (other than equity securities), Channel Islands Depositary Receipts and other categories of specialist securities approved by the CISX's Market Authority.
- Scope. The issuer may be either a public issuer (a public international body recognised by the CISX, a government or a governmental agency whose obligations are guaranteed by a government) or a private issuer, which may include a special purpose vehicle (SPV) (a company, unit trust or limited partnership formed for the specific purpose of issuing one or more classes or series of debt securities or asset-backed securities), company, partnership, unit trust or other entity acceptable to the CISX.
- Incorporation. The issuer must be duly incorporated or otherwise established in its place of establishment and operating in conformity with its constitutional documents.
- Audited accounts. With the exception of securities issued by an SPV, a private issuer of debt securities must have produced independently audited accounts for the two financial years prior to the listing, although in exceptional cases the CISX may accept a shorter period.
- Clearing and settlement. Securities for which listing is sought must be eligible for deposit in a clearing and settlement system acceptable to the CISX, including Euroclear and Clearstream. Alternative clearing and settlement arrangements may be approved by the CISX.
- Access to information. A trustee or other appropriate independent party representing the interests of the holders of asset-backed debt securities must have the right to access appropriate information relating to the assets.
- Transferability. The securities must be freely transferable and tradeable, subject to limited exceptions.
- Listing document. The issuer must publish a listing document that complies with the CISX Listing Rules. There is a maximum of 22 straightforward disclosure requirements for specialist securities that are set out in the Listing Rules, although there are certain additional information requirements in relation to the assets underlying asset-backed securities.
- Non-resident paying agents allowed. The CISX does not require that a paying agent in the Channel Islands be appointed.
The CISX has developed a fast-track 'equivalence approach' to the processing of applications for specialist securities. This means an application may be processed using a listing document prepared under the relevant guidelines of a jurisdiction or stock exchange recognised by the CISX, provided that there has been no material change to the information contained in such listing document. The CISX should be contacted at the earliest opportunity to determine whether the equivalence approach may be applied.
In terms of the CISX approach to the processing of applications for the listing of specialist securities, the Market Authority is very aware that the nature of an issue of specialist securities and the requirements of professional investors mean that a rapid listing may be required. The CISX is able to respond to that expectation so that, if necessary, application and admission to the Official List can take place on the same day.
Subject to the availability of documentation, it is generally possible to proceed from initial application to listing in 10 days, although the CISX is receptive to an even faster listing process if commercial considerations so require.
For debt securities, the CISX currently charges an up-front listing fee of £3,000.
No annual or further fee is payable, although for issues by SPVs and asset-backed securities an additional £500 per issue is payable, and for a debt programme an additional £1,000 per issue is payable. There is also a fee of £100 for publication of a formal notice.
Alan Stevens is a partner at Carey Olsen