Cayman Islands: MAR – A Consequence Of Listing On The Irish Stock Exchange

Last Updated: 6 March 2017
Article by Scott Macdonald and Stephen McLoughlin

What is MAR? - The European Market Abuse Regulation ("MAR"), which replaced and extended the existing market abuse regime, prohibits insider dealing, market manipulation and unlawful disclosure of inside information in respect of securities listed on an EU stock exchange, applies to the vast majority of US BSL CLOs given the market trend of listing CLO notes on either the Main Securities Market or the GEM of the ISE. While the Central Bank of Ireland ("CBI") has undertaken a soft implementation of MAR with regard to securities such as CLOs, MAR came into force on 3 July 2016 and now covers securities listed on the GEM. CLO issuers should be in the process of taking, or already have taken, steps to comply. Failure to comply with MAR can result in both administrative sanctions and criminal sanctions in the form of fines and/or imprisonment.

Why are we listed on the ISE? - We understand that CLO notes were originally listed on the ISE to satisfy the internal investment requirements of various institutional EU investors and, more latterly, Asian investors who require a listing on an EU regulated exchange. Initially, at least, the ISE listing provided liquidity in both the primary and secondary markets with regard to such investors. For this reason, and as a noted preference for certain Japanese investors, it subsequently became market convention to list CLOs on the ISE.

Why not de-list? - The compliance obligations and costs of MAR can be avoided completely by de-listing the CLO issuer from the ISE. However, the relevant provisions of the Indenture and the Offering Memorandum/Circular should be reviewed and considered. Many Indentures contain a covenant requiring the issuer to use reasonable efforts to maintain an ISE listing. De-listing will likely incur certain legal fees and costs, in addition to the ISE de-listing notice fee of €300.

How do we comply? – Each CLO issuer listed on the ISE should:

  • adopt policies and procedures relating to the treatment of inside information, including to ensure the immediate publication of inside information, and to ensure that any delay in the publication of inside information is in accordance with MAR;
  • draw up and maintain, in the prescribed form, a permanent insider list (the "Insider List") of persons with access to inside information relating to the issuer or its financial instruments;
  • ensure persons on Insider Lists are aware of, and have acknowledged in writing, their obligations under MAR and the sanctions for insider dealing and unlawful disclosure of inside information;
  • draw up and maintain a list of persons within the issuer and co-issuer discharging managerial responsibilities and of persons closely associated with them ("PDMRs"); and
  • ensure PDMRs are aware of and acknowledge in writing their obligations relating to dealing in the issuers' financial instruments.

What is "inside information" in a CLO? - MAR defines "inside information" as information that:

  • is precise;
  • has not been made public;
  • relates directly or indirectly to the issuer or its financial instruments; and
  • if made public, would be likely to have a significant effect on the price of those financial instruments or on the price of related derivative financial instruments.

While, neither the CBI nor any other EU regulator has issued any guidance specific to securities such as CLOs, the CBI has indicated that an issuer should treat information as "inside information if a reasonable investor would use such information to make investment decisions relating to the relevant CLO notes or related derivative financial instruments to maximise his economic self-interest." In the context of a CLO, we expect the occurrence of events leading to the existence of "inside information" to be relatively rare.

Who is named in the Insider List? – At a minimum, we expect the Insider List to include the names of the manager personnel with day-to-day responsibility for the CLO, the directors of the CLO issuer and the lawyers routinely advising the CLO issuer and the manager. However, any person performing work for the CLO issuer who has access to inside information should be included in the Insider List.

What about an alternative listing? - Given the initial drivers for listing CLOs on the ISE, we do not believe a listing on a non-EU exchange such as the Cayman Islands Stock Exchange ("CSX") would necessarily provide the same liquidity or market benefits. A listing on the CSX is usually obtained to take advantage of the Quoted Eurobond Exemption, which permits interest payments from an EU issuer to be paid without the imposition of withholding tax. This exemption has no applicability or benefit to a Cayman Islands CLO issuer. For this reason, and the reasons outlined above, we are not recommending a CSX listing as a like-for-like alternative to a listing on the ISE.

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.

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Scott Macdonald
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