Cayman Islands: CSX – Guide To Listing Funds

Introduction

Over the last 40 years the Cayman Islands has matured into one of the world’s largest international financial centers, providing institutionally-focused, specialized services to a global client base. The Cayman Islands’ competitive strength in global financial services lies in its ability to provide an effective and cost-efficient tax neutral platform for international capital flows in an environment of economic and political stability. The Cayman Islands is one of the world’s leading offshore jurisdictions for the establishment of investment funds.

For an investment funds incorporated in Cayman Islands who seek a listing, the Cayman Islands Stock Exchange (the “CSX” or “Exchange“) should be the natural listing venue. By domiciling and listing in the same jurisdiction, a fund will eliminate the need for duplicate service providers in another jurisdiction. A ‘one stop shop’ results in cost and time efficiencies.

Since 1997, the CSX has provided a specialized listing and trading facility for the specialist products of the Cayman Islands financial industry, in particular investment funds, specialist debt securities and Eurobonds. The CSX also provides a secondary listing facility and an offshore trading venue for securities listed and traded on another recognized exchange and offers domestic companies the ability to list and trade locally.

In April 2013 the CSX published new listing rules to facilitate listings by start-ups, mineral companies and specialist companies for sophisticated investors.

By acquiring XETRA technology and launching rules targeting equity listings the CSX offers an alternative international venue for listing and trading the shares of growth and specialist companies.

It is recognised that this guide will not completely answer detailed questions which clients and their advisers may have. It is intended to provide a sketch of the subject matter covered. This guide is therefore designed as a starting point for a more detailed and comprehensive discussion of the issues. Particular circumstances or transactions should be the subject of specific legal advice given on the relevant facts at the relevant time.

Information of the CSX

The CSX commenced its operations on 2 January 1997 with the aim of providing facilities for the listing and trading of equity and debt securities. While complying with international standards for recognised stock exchanges, the CSX adopts a flexible and pragmatic approach to regulation. Consequently, the CSX provides issuers of securities with fast, efficient and cost effective listing facility. In terms of listing requirements and procedures, the CSX offers a more flexible less onerous alternative to the other exchanges.

Why use the CSX:

  1. Fast and efficient listing services from an experienced and highly qualified team that understands the complexities of the specialist products listed on the CSX and is committed to meeting each issuer’s listing deadline.
  2. Competitive pricing (discounts are available for umbrella funds and fund families).
  3. Listing Committee convene as often as necessary to approve listings.
  4. International standards of issuer regulation.
  5. Sophisticated listing rules that are easy to understand and commercially driven.
  6. Unlike other offshore jurisdictions, there are no exchange controls in Cayman.
  7. No minimum subscription level for Cayman-domiciled funds (on other stock exchanges the market value of the securities for which application is made must be at least £500,000 (or foreign currency equivalent)).
  8. No restrictions on investment policy and principal investment objectives. Investment policies can be changed provided that the mechanism is disclosed in the listing document (other stock exchanges insist that a fund can not materially change its principal objectives and policies as set out in its Listing Document for a minimum period of three years from the date of its listing other than with the consent of a majority of holders).
  9. The CSX does not insist on any prescribed degree of investment diversification (eg can list currency or commodity fund).
  10. There is no requirement for majority board independence.
  11. Corporate directors are allowed.
  12. The CSX does not insist on the adoption of International Accounting Standards/International Financial Reporting Standards, provided that an appropriate accounting standard is used. For funds which have been is existence for less than twelve months, the CSX requires an audited statement of the net asset value of the fund and its portfolio of investments. Newly incorporated funds are not required to produce financial statements.
  13. As the CSX operates outside EU, and no EU directives apply, the regulatory burden is less than onerous than listing on other major stock exchanges.
  14. CSX is not bound by US SEC regulations.
  15. Synergies from listing on an exchange in the leading domicile in the world for investment funds and structured debt products, providing access to the full range and top calibre of service providers in a jurisdiction that has fashioned its legislative, regulatory and administrative approach to enable the utmost efficiency in specialist product operations.

Deutsche Börse XETRA® trading platform

  1. On 25 March the CSX started using the Deutsche Börse XETRA® trading platform.
  2. The Xetra Trading Platform (the “Xetra“) is one of the flagship technologies offered by the Deutsche Börse. Xetra can be operated either fully electronically for continuous trading, or through a specialist for the continuous auction trading model.
  3. The CSX offers companies that wish to list access to a network of approximately 400 global participants who are currently authorised to trade on one or more Xetra markets. International Xetra participants can be passported through a simple process as CSX broker members and are able to reuse their existing Xetra connection to enter trades into the CSX Xetra platform.

The New Market – ‘XCAY’

The CSX will be accessible through the FIX Gateway under the Market Identification Code ‘XCAY’. Those wishing to trade on XCAY will be able to do so through existing CSX broker members or can access a network of approximately 400 banks and brokers worldwide who are currently authorised to trade on one or more XETRA markets. International XETRA participants can be passported through a simple process as CSX broker members. Trading on XCAY is Monday to Friday continuous with main trading between 12:00pm to 5:30pm (GMT), pre- and post-trading and opening and closing auctions.

Visibility and Trading System Facility

The CSX operates an electronic trading system for equity and debt securities (unlike the CISX where Issuers cannot trade debt). All CSX listings and trading information can be accessed from the CSX’s pages on the Bloomberg Triach screen-based trading platform (access via CSX < GO > on the Bloomberg system) and on its website www.csx.ky.

An online link to the CSX’s reporting system enables every listed fund easily to meet its NAV reporting obligations by electronically self-reporting updates of the fund’s net asset values when calculated, whether on a daily, weekly, monthly or quarterly basis, as well as any change in the number of shares outstanding. The updated information is immediately and automatically published on the CSX’s website, which also includes all previously published updates, to provide an easily accessible, publicly available historical record of the fund’s performance. The CSX’s website also includes all news releases issued by the fund as well as background information about the fund such as its major service providers. To permit a broader distribution of the data, the CSX has agreements in place with Bloomberg and with Telekurs to publish some or all of this data through their facilities. From 25 March 2013 all fund listing on the CSX have the availability for their shares to be traded on the CSX’s Deutsche Börse XETRA® trading platform. The Xetra Trading Platform (the “Xetra“) is one of the flagship technologies offered by the Deutsche Börse. Xetra can be operated either fully electronically for continuous trading, or through a specialist for the continuous auction trading model.

Settlement

Trading in the shares listed on the CSX may be settled via Euroclear, Clearstream and DTC.

International Recognition

The CSX has attracted the following international recognition:

  1. The CSX is regulated by Cayman Islands Stock Exchange Authority.
  2. On 12 July 1999, the CSX became the first offshore stock exchange to be granted approved organization status by the London Stock Exchange (the “LSE“). As a result, securities listed on the CSX are eligible for trading in the LSE’s international equity market and for quotation on the SEAQ (Stock Exchange Automatic Quotation) international trading system.
  3. In June 2001, the CSX became the first offshore exchange to join the Inter market Surveillance Group (a group of 23 North American, European, Asian and Australian stock exchanges committed to the co-ordination of regulatory efforts across the markets represented).
  4. On 4 March 2004, the UK Inland Revenue (now “HM Revenue & Customs”) designated the CSX as a Recognised Stock Exchange under Section 841 of the Income and Corporation Taxes Act, 1988 (ICTA). Consequently, qualifying debt securities listed on the CSX are now eligible for the Quoted Eurobond Exemption. This allows an issuer liable to pay UK tax to make payments of interest on the listed securities gross without deduction for tax. In the UK, there are also capital gains and inheritance tax benefits to investing in shares listed on a recognised stock exchange such as the CSX. In designating the CSX as a recognised stock exchange under section 841 of ICTA it was necessary for the UK Inland Revenue to determine that:
    1. the CSX is a stock exchange undertaking the normal business of a stock exchange regulated as an investment exchange in a major economy or in a significant financial centre; and
    2. the Cayman Islands have proper and effective arrangements for financial regulation which meet internationally accepted modern standards in this area.
  5. The CSX is also an affiliate member of IOSCO and a full member of AIMA, WFE, ISG, ESF.

Appointment of Listing Agent

All applicants seeking a primary listing on the CSX must appoint a listing agent to assist in the listing process.  The listing agent will be responsible for all communications and dealings with the CSX. This will include seeking approval of the CSX for the Listing Document (and any derogations from disclosure requirements) and for the preparation and filing with the CSX of the listing application and other supporting documentation.

Walkers is able to act as a listing agent and we are experienced in the provision of high quality and cost effective professional services in relation to the listing.

The CSX Approach to Listing

In accordance with its pragmatic, business oriented approach to regulation, the CSX is flexible as concerns the disclosure required in respect of a fund issuer and its securities in a Listing Document. The CSX listing rules are intended to provide investors with enough information to enable them to make an informed assessment as to whether or not to invest in the listed securities but without imposing unnecessarily onerous demands on an issuer.

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