International developments such as the EU’s Alternative Investment Fund Managers Directive (AIFMD) and the OECD’s Base Erosion and Profit Shifting (BEPS) initiative are placing increased focus on the substance of investment structures.
The BVI’s Role in the Global F…
Asset management groups are still dealing with the implications and in doing so, they should consider how they can demonstrate additional substance by listing on the Channel Islands Securities Exchange (CISE).
We offer a fully regulated marketplace from our offices in Guernsey and Jersey, which are within the European time zone but outside the European Union. Today, there are more than 2,000 listed securities, including nearly 500 investment securities.
Adding Substance, Creating Value
Recently, we have seen more enquiries from asset management groups who are exploring how a CISE listing might add substance to and create value for their arrangements.
Groups with vehicles listed on the CISE are able to demonstrate additional substance in the Channel Islands by utilising this element of the local infrastructure. Furthermore, greater value is provided through the activity undertaken locally to ensure adherence to the listing rules.
This includes the listing application process, with the minimum conditions of listing, completion of the listing document, disclosure requirements and responsibility statements.
For example, the listing rules for investment vehicles require a minimum of three directors, with the majority being independent of any investment manager or adviser, which adds value by providing strong corporate governance in the structure that is particularly in the interests of shareholders and potential investors.
There are also the continuing obligations post listing, including notifications to the market and the preparation of audited financial statements to internationally recognised standards (e.g. IFRS, UK GAAP, US GAAP).
The audit provides third party scrutiny and review of the financial position, which not only provides us with comfort but creates value by enabling shareholders and the wider public to evaluate performance against the investment objectives outlined in the listing document, which usually takes the form of a prospectus or offering memorandum.
Taken together, these requirements drive transparency and good corporate governance, which in themselves create value within the structure as important factors for investors.
Adherence to our listing rules also allows the group to point to the fact that it is complying with the rules of an Exchange which is an Affiliate Member of both the World Federation of Exchanges (WFE) and the International Organisation of Securities Commissions (IOSCO). We apply these global standards in a manner which is proportionate to the type of product which is being listed.
The CISE also has a number of other recognitions, including those which help widen the potential investor base to more institutions, such as pension funds. For example, the UK tax authority, Her Majesty’s Revenue & Customs (HMRC), deems us to be a Recognised Stock Exchange for the purposes of investment by Self-Invested Personal Pensions (SIPPs) and Individual Savings Accounts (ISAs).
This recognition also means that products listed on the CISE may be able to avail of the Quoted Eurobond Exemption (QEE). Its utilisation includes those fund groups, such as private equity managers, who establish listed debt vehicles to finance acquisitions. Listing these special purpose vehicles on the CISE demonstrates further use of the local infrastructure and therefore adds additional substance to the overall arrangements.
Our allure as a listing venue also includes our responsive approach, cost-effectiveness and proportionate rules.
We updated our listing rules from 1 September 2016 to encompass all types of investment vehicles, including not just open and closed ended funds but also Real Estate Investment Trusts (REITs) and investment companies, along with their associated legal entities.
Also, effective from 1 September 2016 were changes to the Exchange’s Model Code for Securities Transactions by Persons Discharging Managerial Responsibilities (PDMRs). The most significant development is the change in the definition of the ‘closed period’ of securities transactions from 60 days to 30 days, which ensures that we remain competitive at a time of changing market practices.
In addition, from 10 October 2016, we revised our membership rules so that, whereas previously they restricted sponsors to being entities established in the Channel Islands, now sponsors can be based in any jurisdiction deemed acceptable to the Exchange.
There are a number of advantages of listing on the CISE, including the ability to demonstrate additional substance within and create value for investment structures. This is increasingly important given the growing international focus on these principles and so we expect further enquiries from asset management groups who want to address these issues while also taking advantage of our newly updated listing rules for investment vehicles.
About the Author
Fiona Le Poidevin Fiona Le Poidevin is the CEO of The International Stock Exchange Group. She is a Chartered Accountant and a Chartered Director.
Her role includes strategy formulation and business development, exploring opportunities to grow the £300bn+ of securities already listed on the CISE through the introduction of new products and service offerings.
Prior to her appointment in January 2015, Fiona was chief executive of Guernsey Finance, the promotional body for Guernsey’s finance industry. Previously a senior tax manager with a Big 4 accountancy firm, she has more than 18 years’ experience working in financial services in both London and the Channel Islands.