| Listing securities on the Channel Islands Stock Exchange - an alternative to EU exchanges |
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By: Alasdair Hunter, Alasdair Hunter
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The Channel Islands Stock Exchange (CISX) began operations in October 1998 and has seen dramatic growth in the number of securities listed during the last 18 months.
With the increase of EU Directive-driven changes to the way in which the major EU stock exchanges can operate, the investment banking community has focused its attention on the advantages of listing on the CISX, as opposed to an EU exchange.
This has led to a large number of debt securities being de-listed from various EU exchanges and listing on the CISX, as well as new debt securities being listed on issuance. This trend has been particularly marked in the asset-backed securities market and in particular US CDO transactions.
Following the introduction of the Prospectus Directive and the implementation of the Transparency Directive, it has become common for arrangers of CDO transactions to seek listings of preferred shares, subordinated notes and/or combination securities on a non-EU exchange.
The reasoning for this is that a non-EU issuer seeking a listing of any equity securities or debt securities having a minimum denomination of less than ?50,000 on an EU stock exchange is required to produce and file IAS accounts. The production of audited accounts would be an additional ongoing expense for these structures as under Cayman law (the jurisdiction of choice for most US CDO issuers) the issuer is not required to prepare audited accounts.
By listing the preferred shares, subordinated notes and/or combination securities on the CISX, the problem regarding the production of audited accounts is solved as the CISX does not require that accounts be prepared and audited when this is not a requirement of the issuer's home jurisdiction.
International recognition
Another key area for investment banks and their clients relates to the extent to which any stock exchange is 'recognised' by both the investor, as well as by that investor's tax and regulatory authorities. The CISX has obtained numerous recognitions in recent years:
• The US Securities and Exchange Commission recognised the CISX as a designated offshore securities market within the meaning of Rule 902(b) under Regulation S of the US Securities Act 1933
• The UK Inland Revenue designated the CISX as a recognised stock exchange under Section 841 of the UK Income and Corporation Taxes Act 1988 (significant for the purposes of the UK quoted Eurobond exemption)
• The UK Financial Services Authority approved the CISX as a designated investment exchange within the meaning of the Financial Services and Markets Act 2000
Advantages of CISX
The key advantages during the enormous growth in CISX listing volumes are:
• The CISX is not subject to EU legislation in relation to prospectus content or otherwise
• Disclosure requirements on the CISX are more flexible than those applied by the EU stock exchanges and it is possible to list equity-linked, equity and securities with underlying unlisted assets relatively easily, especially where the securities are issued by a special purpose vehicle
• The CISX does not insist on the appointment of a local paying agent
• The CISX does not insist that securities are cleared (although they must be eligible for clearance)
• Audited accounts are not required by the exchange where the issuer is not required to produce audited accounts
• The market authority of the CISX meets daily and in practice, it is possible to list in a period of two business days
• The listing fees charged by the CISX are also extremely reasonable and no annual fees or VAT is charged
Clearly, not every rationale which has driven the growth of CISX listings in the context of the US CDO market will apply to Irish issuers, but the CISX still retains many advantages including fast turnaround times and competitive costs (no local paying agent is required). As a separate service offering, Ogier Fiduciary Services (Ireland) Limited, an affiliate of Ogier Corporate Finance Limited, is fast becoming an established provider of high quality management and administration services to Irish SPVs involved in capital markets transactions with extensive experience in CDOs, SIVs and other structured transactions. Management and control is provided by highly skilled and well regarded Irish resident directors.
Conclusion
The CISX is not, and is unlikely to become, an EU stock exchange. However, for arrangers and issuers who require a listing on a recognised stock exchange but wish to minimise the amount of cost and time spent in listing, we believe the CISX to be an extremely attractive alternative. |
Alasdair Hunter is a managing associate in the business law group at Ogier and works with Ogier Corporate Finance Limited.
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