By Mark Lewis, partner, Bailhache Labesse and director, LordSPV Management (Jersey) Ltd.
The Channel Islands Stock Exchange is reporting an increase in demand for new listings as promoters, managers and issuers take stock of the implications of the implementation of the E.U. Prospectus Directive. The E.U. Prospectus Directive will come into force on July 1. It is the first directive to be implemented under the E.U. Financial Services Action Plan. The plan also includes the Transparency Directive and is designed to create a single pan-European capital market that issuers and investors will be able to access efficiently.
The Prospectus Directive seeks to harmonise the requirements for drafting, approval and distribution of a prospectus in offerings and listings of securities within the E.U. A key aim of the directive is to provide for a prospectus that, having cleared by one E.U. competent authority can be used as a "passport" for offers or listings in all other E.U. countries without further review or the imposition of further disclosure requirements.
The Transparency Directive introduces financial public reporting requirements, which will affect E.U. issuers and non-E.U. issuers listing on a regulated market within the E.U. These requirements are intended to increase investor confidence in securities traded on regulated markets.
The Prospectus Directive applies to both offerings and listings of securities, but there are several non-exclusive exceptions to its scope, including offerings to qualified investors, offerings targeted at less than 100 persons per member State and offerings of at least 50,000 per investor. While these exceptions would allow institutional offerings to continue without triggering the prospectus requirements of the directive, a listing of securities would trigger the directive. In the past there have been marketing reasons for seeking a listing in a euro debt offering, but these could be outweighed in the future by the additional constraints imposed by the directive.
Restrictions on the choice of regulatory jurisdiction to review and approve prospectuses as regards equity and equity-linked securities and low termination debt issues. Non E.U.-issuers will only have one opportunity, effective from Dec. 31, 2003, to choose the country where their prospectuses are approved and where they file their ongoing disclosure for all such relevant securities in the future. This will be a permanent choice and there will be no flexibility after the initial choices made, unless the issuer de-lists the securities.
In the light of these changes the Channel Islands Exchange is increasingly being seen as an attractive alternative to London, Luxembourg and Dublin. Not only does the Channel Islands Exchange continue to attract wide international recognition it offers a number of advantages over its rivals in the E.U.
The Channel Islands Exchange's structure and approach is unique in the European time zone. It was established in 1998 as a response to a growing need to make the Channel Islands more competitive in an increasingly competitive global offshore environment. One of the advantages of being a relatively new stock exchange is that it had the opportunity to "cherry pick" the best practice of the more established exchanges. It has done this to great effect. The Marketing Authority is able to adopt a flexible and pragmatic approach to specialist debt securities and alternative investment products, which sets it apart from its European rivals.
The key advantages of the exchange comprise its speedy turnaround time and consistency of response; its competitive pricing and cost effectiveness; and its pragmatic approach to disclosure requirements.
The application process is straightforward and is usually carried out in two stages. Stage one consists of the initial submission of draft documents. The Market Authority undertakes to provide comments within 48 hours but often comments are given on the same day. The second stage involves the submission of final, signed documents and the requisite listing fee.
Product specific chapters set out the conditions for listing and disclosure requirements. The prospectus, offering memorandum or scheme particulars may be used as the Listing Document. This can lead to the saving of further costs and time. The Listing Rules and disclosure requirements are easy to understand.
The Channel Islands Exchange adopts a pragmatic approach to disclosure requirements. It has particular expertise in the listing of closed-ended funds, open-ended funds and debt instruments. For example, with regard to ABS and CDO backed notes a flexible approach is adopted to disclosure requirements as the securities are usually offered to institutional investors who can be regarded as being in a position to look after their own interests. Again by way of example, where there is a listing of convertible shares or preference shares in connection with these issues, these securities will be treated as debt instruments and not equity. This reflects the economic reality of the arrangements.
Promoters, managers and issuers who are new to the exchange are often very surprised by the responsiveness of the Channel Islands Exchange and their personal approach. The Marketing Authority meets every day to consider applications. It is not uncommon for listings to be completed within seven working days from initial instructions being given to Listing Sponsor.
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