After a lengthy and arduous process that involved the feedback and recommendations of several key stakeholders, Barbados Stock Exchange (BSE) has launched its international securities market (ISM).
This input, amalgamated from our consultants, market participants and our regulator – the Financial Services Commission (FSC) – is greatly appreciated and pivotal to the enduring success of our final product. The BSE received FSC approval for the ‘Rules of the International Securities Market’ on 22 December 2015.
Barbados is a quality destination that is trusted and well regulated, following international best practice in capital market regulation. Barbados’ international business sector contributes approximately 10 per cent of the nation’s GDP and is comprised of approximately 4,000 entities. Significant vertical markets within the international business sector include: financial services, niche manufacturing and information and communications technologies.
Though small, Barbados enjoys a stable and well-established democracy with a long tradition of respecting the rule of law and property rights. Include an excellent infrastructure and one can envision why Barbados is perhaps the ideal host for ISM; a growth platform not only for its market actors – listing sponsors, listed issuers, trading participants, and clearing agents – but also for Barbados’ international business and financial services sector and the national economy as a whole.
The ISM was launched on 15 March 2016 at a breakfast meeting at the Hilton Barbados resort. While well-attended by members of Barbados’ International Business Sector, it was the Honourable Donville Inniss (MP) – Minister of Industry, International Business, Commerce and Small Business Development – who declared the market open for business. He noted:
the vision and determination of the BSE in the launch of the International Securities Market as it aligns with the futuristic view which my Ministry has articulated as a goal for the development of our international business and financial services sector. It also brings our vision of Barbados becoming the international financial wealth management centre of choice in the western hemisphere, one step closer to reality.
In the context of the BSE, an ISM is defined as ‘a market for the listing and trading of securities of issuers, which may or may not be incorporated in Barbados that would otherwise be listed and traded on other exchanges around the world’. The ISM was created to accommodate the needs of a wide range of international businesses by providing affordable access to public markets for small and mid-sized firms that might otherwise be unable to sustain a public listing on much larger stock exchanges in developed markets. The ISM is suitably positioned to accommodate the capitalization needs of these and other international companies.
Participants in the ISM, who are likely to be international offshore banks and international business companies, will be regulated by the BSE – a self-regulatory organization – for their actions and obligations under the Rules of the ISM and subject to the prudential regulation of the Central Bank of Barbados (CBB). Participants will benefit further from the regulatory prudence of the Financial Services Commission in its oversight for take-over, insider trading and market manipulation events. This structure enables the BSE to provide a strong regulatory focus for the ISM; a system of oversight largely absent in many less well-regulated offshore international centres.
The four categories of participants on the ISM are as follows:
• Trading Participants – brokers, dealers and/or market makers - responsible for the trading of securities on the board of the ISM;
• Listed Issuers – companies (or other legal entities) that issue and list securities on the board of the ISM. They are required to have a Listing Sponsor throughout the duration of the listing process;
• Listing Sponsors – nominated advisers whose role is to both shepherd prospective issuers through the listing process as well as ensure that they continually meet their obligations as Listed Issuers on the board of the ISM; and
• Clearing Agents – participants of the Barbados Central Securities Depository Inc (BCSDI) who act on behalf of Trading Members in interfacing with the BCSDI for clearing and settlement procedures.
The ISM is primed to attract the local brokerage community, accountants, attorneys and other similarly suited operators to act as listing sponsors. This role is further extended to current and prospective international law firms, international accountants, offshore banks, international business entities and international securities dealers. Listing sponsors are the liaison entities between the Issuer and the BSE.
The range of products initially considered for listing on the ISM includes:
• Equity securities;
• Debt securities – including corporate debt paper, term notes, Eurobonds and convertible bonds; and
• Investment funds – including property funds, umbrella funds, feeder funds and fund of funds.
It must be noted, however, that the ISM’s regulatory environment is set to facilitate other new and innovative product listings, especially institutional-only securities marketed to sophisticated investors.
International trading markets are by no means a new concept – there are currently several successful ISMs in operation across the globe. These international trading platforms (ITFs) cite their innovative and flexible approach as the key ingredient to their significant and sustained growth in recent years. Further, major contributing factors cited were a ‘light but effective’ regulatory environment that encourages new and innovative product listings and the evolution of their regulatory and legal systems by their respective governments to facilitate their international business sectors by providing the necessary infrastructure for growth and expansion. These ITFs employ regulatory oversight for their markets that allows for both a timely response to sudden changes and the ability to satisfy market needs as they arise.
The ISM Advantage – Benefits/Opportunities
In addition to such advantages, a low-cost structure (relative to competing jurisdictions) represents the ISM’s most compelling advantage. Accordingly, the fees for the ISM are 30 to 50 per cent lower than that of the larger exchanges in North America and Europe.
The ISM is strategically positioned to leverage both Barbados’ elite tourism reputation and the country’s growing focus on attracting and retaining businesses of substance to its shores. As the only low-tax wealth management jurisdiction in the Caribbean with a comprehensive tax treaty network, Barbados offers a prudent regulatory environment that can meet or exceed international best practice. With an established 36 double taxation agreements (DTAs) already in place, Barbados offers a unique value proposition to astute international businesses and discerning investors. To be clear, DTAs ensure that foreign nationals – covered under Barbados’ international tax treaty network – are exempt from withholding taxes on dividends, interest or royalties realized locally.
Furthermore, the ISM offers several direct benefits to the Barbadian economy. Particularly, the ISM:
• Strengthens and expands possibilities for the existing international business community.
•Raises the profile of Barbados internationally as an international financial centre of substance and further solidifies Barbados as an international business destination.
• Raises the possibility of attracting new types of international business to Barbados.
• Encourages positive use of the numerous double tax treaties.
• Enables new types of business to be undertaken by local, regional and international practitioners – listing sponsors.
• Assists in future double tax agreement negotiations and trade agreements.
• Enhances the current international financial services infrastructure with new and updated legislative framework.
The ISM – The Road Ahead…
It is apparent that 22 December 2015 was a remarkably unique date in the history of the BSE. Not only were its ISM Rules approved by Barbados’ Financial Services Commission, this date also marked the transformation of the BSE from a member-owned, non-profit exchange to a shareholder-owned, for profit, exchange. This restructuring, into a fully demutualized exchange, was deemed as a necessary and important precondition by the board of the BSE for the launch of the ISM.
To assist in the continued development of the ISM, the BSE has established a team comprising members of its business development, compliance and regulatory reporting, IT and market operations departments. This team, spear-headed by its managing director, Marlon Yarde, is tasked with the execution of a number of strategies geared at the promotion, growth and sustainable development of the ISM.
In just under a year, the team has been actively engaged by several of Barbados’ leading market practitioners and by professionals from within the Caribbean region. While the BSE intends to establish a consortium of Barbados’ premiere service providers, strategic efforts remain in place to meet and follow-up with international market actors in pursuit of listing sponsors and trading participants for the support and augmentation of the market. Thus far, the team’s efforts have been rewarded – at present the BSE has signed and retained two listing sponsors for the ISM – Centurion ISM Services Incorporated and FGC Services Limited.
The BSE is pleased to have played a role in the evolution of Barbados’ capital markets. The ISM is open for business and ready to meet the capitalization needs of the International Business and Financial Services sector.
Marlon E. Yarde
Marlon E. Yarde is the Managing Director at Barbados Stock Exchange Inc. and the Barbados Central Securities Depository Inc.