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 European Union directive-driven changes to the way in which the major E.U. stock exchanges can operate, the investment banking community has focused its attention on the advantages of listing on the CISX as opposed to on an E.U. exchange.
This has led to a large number of debt securities being de-listed from various E.U. 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, U.S., CDO transactions.
CDO listings
Following the introduction of the Prospectus Directive and the awareness in the market of the proposals contained in the Transparency Obligations Directive (the "TOD"), it has become common for arrangers of CDO transactions to seek listings of the preferred shares, subordinated notes and/or combination securities on a non-E.U. exchange.
The reasoning for this is that a non-E.U. issuer seeking a listing of (a) any equity securities; or (b) debt securities having a minimum denomination of less than 50,000 on an E.U. stock exchange is required to produce and file IAS accounts from the effective date of the TOD (expected to be in January 2007). The production of audited accounts would be an additional ongoing expense for these structures as under Cayman law (the jurisdiction of choice for most U.S. 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 where 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 recognized' by both the place of that investor, as well as by that investor's tax and regulatory authorities. The CISX has obtained numerous recognitions in recent years:
*the U.S. Securities and Exchange Commission recognized the CISX as a designated offshore securities market within the meaning of Rule 902(b) under Regulation S of the U.S. Securities Act 1933;
*the U.K. Inland Revenue designated the CISX as a recognised stock exchange under Section 841 of the U.K. Income and Corporation Taxes Act 1988 (significant for the purposes of the U.K. quoted Eurobond exemption); and
*the U.K. 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 E.U. legislation in relation to prospectus content or otherwise;
*disclosure requirements on the CISX are more flexible than those applied by the E.U. 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; and
*the listing fees charged by the CISX are also extremely reasonable and no annual fees or VAT is charged.
Conclusion
The CISX is not, and is unlikely to become, an E.U. 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.
Ogier Corporate Finance Ltd. is a category 1 listing member on the CISX and has been a member since the launch of the CISX in October 1998. Ogier Corporate Finance Ltd. has listed more than 50 debt issues in the last 12 months, and offers a seamless listing service through both its Jersey and Guernsey offices.
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