The CISX - An Exchange of the Future
The Channel Islands Stock Exchange (CISX), which this year is celebrating its tenth anniversary, has become firmly established in the international marketplace and attracts business from many of the major regions of the world. There are 25 countries represented on the Official List and more than 200 international issuers have chosen the CISX as the launch pad for the primary listing and the trading of their securities.
To date, the Market Authority has admitted over 2900 securities to the Official List, with a market capitalisation in excess of USD50billion (excluding capital markets products) as at September 2008.
The Exchange now occupies a significant position in the financial services sector of the Channel Islands, completing the range of services offered by financial services professionals and attracting new business to the Islands.
The CISX's trademark high standard of personal service, delivered efficiently and pragmatically, has gained the CISX acceptance from an ever-increasing number of international issuers. At the same time, the Exchange's disclosure regime and credible track record has enabled it to obtain recognition from regulatory authorities in some of the world's leading economies.
Founded in October 1998, the CISX is in a unique position being outside the European Union, but within the strategic European time zone, and with the added benefit of widely-held international recognition. A key period was between 2002 and 2003 when the Exchange was recognised formally by the US Securities Exchange Commission and by Her Majesty's Revenue and Customs (HMRC) in the UK. Within 12 months, it had also been approved as an Affiliate Member of IOSCO.
The Market Authority understands the need for differentiation and innovation in a competitive marketplace and is well placed to meet the challenges of a demanding and diverse universe of product providers. It is willing to work with each issuer to see how their product structure might fit into the Exchange's Listing Rules and, then, how the Exchange might bring added value to the listing.
For instance, long before the recent boom that boosted the profile of private equity investment around the world, the Channel Islands Stock Exchange was a pioneer in the field - it was one of the first stock exchanges in Europe to allow the listing of limited partnerships' interests. Today the CISX has a number of these listings, particularly from the Scandinavian region, where this type of structure has been used by pension funds to invest in asset classes such as property and mezzanine financing. The Exchange has developed a significant role in providing a tax efficient means for raising debt for the UK private equity market. Over the past four years, issuers in England and Wales have been responsible for more than GBP30 billion in debt listings on the CISX.
In terms of the range of securities listed on the CISX, there is a very broad base, with niche markets in the listing of structured products, acquisition vehicles and property funds. The CISX is also widely used for the listing of a range of alternative fund structures, including property and hedge, as well as private equity funds. In addition, it has also established itself as a specialist exchange in truly alternative funds that invest in a broad range of assets; the CISX already lists the first wine fund, two art funds and forestry and tree funds.
The CISX itself is innovative in its approach to delivering an unrivalled service, combining flexibility with responsibility, and accepts a wide range of innovative products. One recent highlight has been the listing of nine innovative new funds by Arab Bank, which has the biggest branch network of any Middle East bank. The new funds are a mixture of traditional and Sharia'a compliant vehicles. The Exchange has also listed a fund which has been domiciled and administered in Guernsey in order to fund the building of the UK's largest data centre. The PFB Data Centre Fund has been set up to focus on the specialist property sector and has entered into a joint venture with a German-based developer.
Advantages of a CISX Listing
The structure of the CISX has been specifically designed to differentiate it from other exchanges. The Exchange's membership structure allows Channel Islands fund management groups as well as law and accountancy firms to become Listing Members. An issuer wishing to have its securities listed on the CISX is required to engage the services of a Listing Member to act as sponsor. One advantage of the membership structure is that many international issuers may utilise an existing professional service provider or fund manager that is a member of the CISX, thus facilitating a one-stop-shop and potentially saving on costs.
The Market Authority accepts a wide range of legal structures for admission to the Official List, including protected cell companies and limited partnerships. With regard to the specialist debt sector, the Market Authority recognises that such securities are typically targeted at institutional investors, thus it approaches the listing of specialist debt securities in a very pragmatic way. Disclosure of information is kept to a minimum, focusing on the key features of the debt issuance programme or debenture, the terms and conditions of the issue and, in the case of asset-backed securities, the underlying assets.
The listing of debt on a recognised stock exchange - as the CISX is by the UK tax authorities - exempts UK issuers from withholding tax on interest payments to investors outside the UK, a provision known as the quoted Eurobond exemption. This is important given the role of debt in private equity acquisition structures and the use of so-called payment in kind notes to pay interest in order to minimise cash payments during the life of the loan. While these payments in kind trigger tax deductions for the issuer, withholding tax becomes payable, hence the importance of the quoted Eurobond exemption to mitigate this tax liability. Since the exemption applies to interest paid as opposed to accrued, it means unpaid interest that accrued before the listing of the debt can escape the tax if it is paid subsequently.
As well as the CISX, various other stock exchanges within the EU are recognised for the purposes of the exemption. However, because the Channel Islands are not members of the EU, issuers are not subject to a wide range of European legislation including the Prospectus Directive and the Transparency Directive. This means, for example, that there is no requirement to prepare accounts according to International Financial Reporting Standards, with all the additional costs and complexity that entails; the Exchange offers issuers the flexibility to use US or UK GAAP instead. This is on top of flexibility in other areas, such as continuing obligations, and the speed and efficiency that gives the Exchange an advantage in terms of listing turnaround time.
The CISX's market continues to develop, with trading volumes and turnover steadily increasing. The Exchange offers a full listing and trading facility for commercial trading companies and closed-ended investment companies. Shares that are partly-paid may also be traded. There are market makers and an order book facility, with transactions having the advantage of full CREST settlement. In March 2005, the Exchange extended the trading facilities to open-ended investment companies.
Trading is conducted every weekday excluding public holidays and takes place on a continuous basis during normal trading hours of 9.00am to 4.30pm. Orders and quotations may be added, deleted, or amended on the trading system by Trading Members prior to normal trading hours between 8.00am and 9.00am
Market data is distributed worldwide through Reuters and via the CISX website. Recently introduced features on the CISX website include the publication of news on CISX-listed securities and the ability to search for market data including corporate actions, closing prices, net asset values and other information on listed companies by a variety of search facilities such as security type, date of listing, domicile, etc.
The enhanced services of the CISX website will ensure that the Exchange delivers timely market news to a wider audience. Its technical design has created a dynamic site and offers greater flexibility to the Exchange to respond to future developments. The CISX website is under continuous development to provide enhanced services to investors and issuers alike.
The CISX offers an opportunity for those international businesses already attracted to the Channel Islands to take advantage of a personalised approach and fast track processing of applications within a highly regulated and innovative marketplace. As the 10th anniversary celebrations for the Exchange reach a conclusion, it is looking forward to the future with confidence, knowing that with the support of its Members, the CISX is in a good position to carve for itself a strong and secure presence in the global marketplace.
By Tamara Menteshvili, Chief Executive