We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
08 February 2011
The Channel Islands Stock Exchange offers:
Designation by both the UK authorities and international organisations is a strong endorsement of the status of the Channel Islands as a significant financial centre.
The exchange commenced operations on October 27 1998 with the intention of providing recognised facilities for the listing and trading of a broad range of debt securities. Current listings on the exchange include equity-linked notes, convertible notes, payment-in-kind notes, Eurobonds and warrants. As of March 31 2010, there are more than 3,500 listings on the exchange with a market capitalisation in excess of $50 billion.
In December 2002 the exchange was designated by the UK Inland Revenue as a recognised stock exchange under Section 841 of the UK Income and Corporation Taxes Act 1988. This designation is significant because qualifying debt securities listed on the exchange are now eligible for the 'quoted Eurobond exemption'. This allows an issuer within the UK tax net to make payments of interest on the listed securities gross without deduction for tax.
In designating the exchange as a recognised stock exchange under Section 841 of the Income and Corporation Taxes Act, it was necessary for the UK Inland Revenue to determine that:
The legislation introduced by the Finance Bill 2007 in no way alters the position of the exchange as a recognised stock exchange.
The exchange has been designated by the US Securities and Exchange Commission as a 'designated offshore securities market' under Regulation S of the US Securities Act 1933 and has also been classified as a 'designated investment exchange' by the Financial Services Authority in the United Kingdom. This classification facilitates trading by UK authorised firms by providing a more favourable regulatory environment for transactions effected on the exchange and also allows UK authorised firms to sell investments listed on the exchange to clients in the United States.
The exchange is also recognised by the Australian Stock Exchange, is registered with the International Federation of Stock Exchanges as a corresponding market and is an associate member of the International Securities Market Association. In addition, the exchange is a member of the European Securitisation Forum (an organisation sponsored by the US Bond Market Association), an affiliate member of the International Organisation of Securities Commissions and an associate member of the International Capital Market Services Association.
A technical advantage that the exchange has over other stock exchanges is that it is more flexible in its accounting requirements and does not insist on the adoption of International Accounting Standards or International Financial Reporting Standards for debt securities, provided that an appropriate accounting standard is used. Under these international standards, financial liability derivatives must be accounted for at 'fair value' rather than at historic cost. This can result in an issuer incurring technical losses or profits, which in turn may produce unpredictable tax liabilities.
Many institutional investors are constrained by their internal investment policies to investing in securities which are listed on a recognised stock exchange. The exchange has been established for the purpose of providing, among other services, a recognised stock exchange listing facility for specialised debt securities. While complying with international standards for recognised stock exchanges, the exchange has adopted a flexible and pragmatic approach to regulation. This business-oriented approach is similar to that which has contributed to the development of the Channel Islands as a first-class finance centre. The exchange has developed Listing Rules which place a premium on clarity and an appropriate level of corporate governance. Fast-track listing procedures have also been developed to facilitate the listing of structured debt instruments. This enables the exchange to provide arrangers of debt issuance transactions with a fast, efficient and cost-effective listing facility.
The exchange operates in a remote environment within an electronic trading system which it monitors centrally. All listing and trading information can be accessed from the exchange's dedicated pages on Reuters Triarch screen-based trading platform and on its website. (1) Trading members of the exchange may display orders for listed securities by sending their prices via Reuters to the exchange and these prices are then disseminated to all Reuters users (access via the exchange's Reuters pages CISXINDEX).
Unlike other European stock exchanges, the exchange is not bound by any EU listing directives and, as a result, can be considerably more flexible in its approach. The exchange does not require an issuer to appoint a local paying agent in the Channel Islands and is generally more flexible on local presence requirements compared to stock exchanges established in the European Union. The exchange is aware of the time constraints which affect issuers and their professional advisers, and is committed to meeting an agreed transaction timetable. The fees levied by the exchange for listing debt securities are competitive with other Eurobond exchanges.
In order to proceed with a listing, a proposed issuer must appoint a sponsor to assist in relation to the listing procedure. The sponsor will be responsible for all communications and dealings with the exchange (including seeking the approval of the exchange for the form and content of the listing document), and for the preparation and filing with the exchange of the formal listing application and supporting documentation). In addition, a sponsor can apply to the exchange for derogations in the formal disclosure requirements applicable to the contents of the listing document.
The exchange recognises that structured debt securities issued by special purpose vehicles tend to be purchased and traded by a limited number of sophisticated and institutional investors. The exchange endeavours to adopt a pragmatic approach to regulation. It is flexible in its requirements regarding the detailed information describing the issuer and its debt securities required to be included in a prospectus (the listing document), which is therefore a relatively short form document. Disclosure requirements have been set at a level which are intended to provide investors with sufficient information to enable them to make an informed investment decision regarding the listed securities, but without imposing unnecessarily onerous demands on an issuer. Where any such information would not be applicable or appropriate to a particular issue, an application for derogation from the formal requirements may be made to the exchange. The exchange may authorise the omission of certain information from the listing document where it considers such information to be inapplicable or of minor importance. Derogation may also be permitted if disclosure would be seriously detrimental to the issuer or contrary to the public interest. As a general approach, however, the exchange would normally expect a listing document to disclose all such information as may be necessary to enable an investor to make an informed assessment on the financial position, activities, management and prospects of an issuer and of the rights (and any liabilities) attached to the debt securities for which a listing is sought.
Within the meaning of the Listing Rules, a 'special purpose vehicle' is any company, unit trust or limited partnership that is formed for the specific purpose of issuing one or more class or series of debt security or asset-backed security.
The rules for the listing of debt securities on the exchange (the Listing Rules) are designed to ensure that investors have and maintain confidence in the securities market - in particular, that in relation to the issuer and the debt securities for which application for listing has been made:
The exchange encourages prospective issuers and their sponsors to contact the exchange at an early stage to seek informal and confidential guidance as to the eligibility of a proposed listing application.
Stage 1: satisfy listing conditions
An issuer seeking a listing for debt securities on the exchange must satisfy all of the conditions for listing. The applicant's professional advisers and the listing sponsor to the application are encouraged to discuss the suitability of the listing proposals with the exchange before making any formal application.
Stage 2: preparation of draft
The listing sponsor, in conjunction with the applicant's professional advisers, will prepare drafts of the formal listing documentation for review and comment by the exchange.
The application documents include the following:
Stage 3: initial application
Once the application documents are in substantially agreed form, the sponsor will make the initial application on behalf of the issuer. Once the exchange has reviewed the initial application, it will provide comments to the listing sponsor. The listing sponsor will then discuss the comments with the exchange and amend the documents if necessary.
Stage 4: listing
If the Market Authority approves the application and has no further comments on the initial application, the listing documentation is then filed and the securities are admitted to the Official List.
Once a listing has occurred, an issuer must comply with the continuing obligations specified in the Listing Rules.
The continuing obligations are intended to ensure that all market users have simultaneous access to the same information and to maintain an orderly market in the listed debt securities.
The exchange fee for the listing of specialist debt securities is £3,425 for a non-special purpose vehicle and £3,925 for a special purpose vehicle. No annual fee is charged by the exchange in respect of listing such securities.
This update highlights the principal requirements and key issues to be considered when considering the listing of structured debt securities on the exchange.
(1) See www.cisx.com.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.