Cayman Islands: The Cayman Islands And The CSX: ‘Business @ Its Best’

The genesis for the Cayman Islands Stock Exchange (‘CSX’) was the Cayman Islands’ strength in the mutual fund and structured finance sectors. In fact, with over 8,000 mutual funds and 155 mutual funds administrators, the Cayman Islands dominate the offshore mutual fund industry. Similarly, in the international capital markets, Cayman continues to be the jurisdiction of choice for sophisticated structured finance transactions and securitisations.

A progressive, client-centred approach has been the key to the Cayman Islands’ success. A strategic partnership between the Government and the private sector produces a business environment responsive to the needs of the financial industry. The establishment of the CSX is but one example of this strategic partnership in action.

The ready availability of experienced professionals dedicated to providing a first-class service has helped the Cayman Islands rise to the top. Thus, for example, all major accounting firms have substantial practices in Cayman; the majority of the top 50 banks globally have branches or subsidiaries in Cayman; and there are over 25 law firms providing a wide range of expert legal services.

The CSX reflects the jurisdictional attributes of excellence, experience and client focus.

Operational since July 1997, the CSX currently has over 1,200 listings, attracting companies established both in Cayman and internationally. This represents an average annual growth rate of over 20%.

The CSX was originally set up to provide a listing facility for Cayman’s specialist products, mutual funds and debt securities. Since then, the CSX has expanded its facilities for listing of derivative warrants, depository receipts, eurobonds, preferred shares and international equity. The CSX also provides a secondary listing facility and an offshore trading venue in the North American time zone for companies listed and traded on another recognised exchange. Domestic companies may also list and trade on the Exchange.

The CSX has developed sophisticated listing rules, tailored to meet the needs of issuers and to accommodate the latest sophisticated structures and products. The emphasis is on the disclosure of all relevant information without imposing unnecessarily onerous conditions.

The CSX’s professional staff ensures a responsive service from an experienced and highly qualified team who understands the complexities of the specialist products listed on the Exchange. Guaranteed turnaround times for comments on listing documents ensure a fast and efficient service.

Publication of all listed issuers’ price and other information on the CSX’s dedicated Bloomberg facilities, and on the Internet, ensures transparency for the investor and guarantees visibility for the issuer at all times.

The CSX’s listing fees are highly competitive. There is an initial listing fee, payable upon application for listing, and an annual fee, payable upon each listing anniversary. A schedule of fees is published on the CSX website.

The result? The world’s leading financial institutions have listed their products on the CSX, and the exchange is recognised by the major market players as a ‘blue chip’ listing environment that provides investors with the necessary degree of regulation and comfort they seek when making investment decisions.

In March 2004, the UK Inland Revenue granted the CSX status as a ‘recognised stock exchange’ under section 841 of the Income and Corporation Taxes Act 1998. As a result interest paid on securities listed on the Cayman Islands Stock Exchange can be paid without deduction of UK tax.

The CSX became an Affiliate Member of the International Organisation of Securities Commissions (IOSCO) in October 2003.

In June 2001, the CSX became the first offshore exchange to join the Intermarket Surveillance Group (ISG), which is an international group of over 30 North American, European, Asian and Australian stock exchanges committed to the coordination of regulatory efforts across the markets represented.

In 1999, the CSX became the first offshore stock exchange to be granted approved organisation status by the London Stock Exchange (LSE). As a result, securities listed on the CSX are now eligible for trading on the LSE’s international equity market and for quotation on the SEAQ (Stock Exchange Automatic Quotation) International Trading system.

Accurate, up-to-date and readily accessible financial information is critical for investors. With investors from every part of the world, the delivery of information rapidly and accurately is a key feature of the CSX service. The CSX’s electronic systems ensure the flow of timely information, providing investors worldwide with easy access to the information they need.

To ensure the highest standards are met, the CSX forged a partnership with the global financial information provider, Bloomberg Financial Markets. In conjunction with Bloomberg, the CSX has developed a fully electronic listing platform and a dedicated news wire service.

The CSX’s trading facility is web-based and "order driven", providing broker members of the Exchange accessing the system with electronic notification of new quotes entered into the system and with the ability to trade online. Orders and trades are displayed on-screen through the central system. In order to assure comprehensive protection for all market participants, the CSX monitors all market transactions through its market surveillance system.

The CSX website (www.csx.com.ky) provides fully interactive access to information and prices held by the CSX and is mirrored on Bloomberg.

In September 2003, the CSX launched a crossing market platform that is used extensively by remote broker members specifically admitted to the CSX crossing market.

The CSX has gained a reputation among the world’s leading asset managers for its professionalism and efficiency. Over 80% of the issues approved since 1997 are funds, among which are several of the largest hedge funds in the world.

A listing on the CSX brings multiple benefits to a mutual fund including access to investor capital and a wider international investor base. Because certain types of investor may only invest in listed, rather than unlisted, securities, a listing enhances the marketability of a mutual fund. For closed-ended funds, where there is no facility to redeem, a listing on the CSX can provide a secondary market with a platform for both buyers and sellers.

The CSX screens carefully applications for listing, and examines the parties involved. Investors know once a mutual fund is listed, it has satisfied, and must continue to satisfy, the conditions for listing imposed by the CSX which are designed to safeguard the interests of investors and to provide a market-aware listing facility.

Early in 2001, the CSX and Euroclear agreed to establish a cooperative link that enables CSX listed funds to participate in FundSettle at no additional cost, allowing them access to a larger investor base.

FundSettle is a dedicated platform specifically designed for high-volume, cross-border fund transactions. It provides a single access point to help streamline communications between distributors, fund managers and transfer agents worldwide.

Specialist Debt Securities and Eurobonds

Launched in January 1998, the CSX specialist debt listing facility has attracted the attention of the major institutional arrangers for these types of issue, who have listed a variety of asset-backed securities, credit-linked notes and collateralised debt offerings on the CSX.

The issuance and listing of debt under CSX-approved debt issuance programmes has also proven very successful. Approval of debt issuance programmes is valid for five years with no annual updates required.

The CSX has also developed rules for eurobonds. The eurobond rules cover ‘plain vanilla’ eurobonds, convertible debt securities, securities issued by supranational bodies and securities guaranteed by a company or a government.

Issues of such products may have to be listed to meet the investment requirements of institutional investors.

The listing rules reflect the market: such securities are usually purchased and traded by a limited number of institutional investors who are particularly knowledgeable in investment matters.

Unlike other stock exchanges, there is no requirement in the CSX’s listing rules for a local listing agent to be appointed in connection with an application to list specialist debt securities. The lead manager or the issuer’s legal advisers may deal directly with the CSX’s listing department. These provisions help to reduce costs and improve time efficiencies.

Additionally, unlike other stock exchanges, the CSX is not bound by the European Union Listing Directives and as a result can be considerably more flexible in its approach. Language is a further advantage to listing on the CSX compared to listing on other exchanges: English, the common language of international finance, is the language for all listing documentation.

Preferred Shares
The CSX, alert to market developments, demonstrated again its hallmark flexibility by introducing in 2001 specialist listing requirements for preferred shares issued by special purpose vehicles (SPV’s). Due to the nature of preferred shares, these requirements are a combination of those for specialist debt and equity, and emphasize disclosure of relevant information to enable an investor to assess the value of the securities.

Depositary Receipts and International Equity
The listing requirements for depositary receipts are less demanding than those for shares because the market is dominated by sophisticated investors, primarily financial institutions, who are particularly knowledgeable in investment matters.

In 2003 the Exchange introduced rules to enable the listing of shares of companies formed outside the Cayman Islands. The creation of these rules was a direct result of expressed interest from international companies for listing and trading on the CSX.

Derivative Warrants
Derivative warrants meet specialised investment needs and are usually issued by a third party, often using a Cayman Islands special purpose vehicle. Issues of derivative warrants may have to be listed to meet the investment requirements of institutional investors.

Rules which specifically facilitate listings of derivative warrants were introduced in March 1999 and were immediately met with great interest from major international financial institutions. The rules deal with issues of warrants that relate to equity securities, debt securities, baskets of securities and indices.

These rules avoid duplication for the issuer by recognising that disclosure requirements can be significantly reduced where sufficient information on the underlying assets is already in the public domain enabling investors to obtain all the information necessary to form a reasonable opinion as to the value of such assets. Thus, where the underlying assets are already listed on a recognised exchange, the information required to be included in the listing document takes this into account.

Most of the derivative warrants that have been listed on the CSX were under derivative warrant programmes, another very successful facility provided to the warrant market. The CSX has made special streamlined provisions to accommodate issuers wishing to utilize such a facility.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.