Originally appeared in Finance, Offshore – Winter 2012
The Channel Islands' Stock Exchange (the "CISX") was launched in 1998. Appleby Securities (Channel Islands) Limited is one of the founder members and continues to act as sponsor to many companies and investment funds listed on the exchange.
The CISX continues to flourish with 498 new admissions for the year ending 2011. Notwithstanding the challenging economic climate, additional capital raised through further issues by listed issuers during the year highlighted one of the potential benefits of being on the CISX Official List. Listed closed-ended funds raised additional capital of £88.5 million, whilst special purpose vehicles raised a further £204.8 million of additional capital in 2011 according to the CISX Executive Factfile.
Unregulated Closed-Ended Funds
The Market Authority of the CISX has recently announced that it would need to develop its policy in respect of unregulated funds given increased level of interest expressed by the CISX's members throughout 2011.
The CISX Listing Rules (the "Listing Rules") within Chapter VII were originally designed primarily with regulated funds in mind, the definitions of which are set out within the Listing Rules. However, it was clear (following consultation with CISX members) that these definitions needed to be updated in light of the regulatory changes that have come into effect in recent times, particularly the introduction of the registered funds regime in Guernsey.
Understandably, the CISX does not wish to be placed in a position where it needs to become the arbiter of quality or to have the exchange perceived as the regulator of an unregulated listed fund by virtue of its listing, and so the Market Authority has issued a carefully worded guidance note to its members with a view to introducing revised Listing Rules in due course (which will focus on Listing Rule 7.3.2 and the definitions of authorised and approved funds).
The guidance note sets out the Market Authority's policy for applications in connection with unregulated closed-ended investment funds. It should be noted, that unregulated open-ended funds are still not acceptable to the Market Authority.
The Market Authority proposes to introduce changes to Listing Rule 7.3.2 which will help to clarify what conditions an investment fund comply with to be eligible for listing on the CISX. A fund must:
"i) be an authorised fund; or ["approved fund" has been deleted]
ii) be duly incorporated or otherwise validly established and regulated in a jurisdiction recognised for the purpose by the Exchange; or
iii) be otherwise acceptable to the Exchange."
The revised definition of an "authorised fund" within Chapter I of the Listing Rules will be an investment fund authorised or registered by the GFSC under The Protection of Investors (Bailiwick of Guernsey) Law 1987 (as amended); or recognised or certified by the JFSC under the Collective Investment Funds (Jersey) Law 1988 (as amended).
The guidance note discusses which types of investment funds fall under category (iii) above. The fund (not being an authorised fund or regulated in a recognised jurisdiction) would be "otherwise acceptable to the Exchange" where:
"1) the fund is unregulated, closed-ended (unregulated open-ended collective investment schemes are not acceptable) and;
2) the fund is incorporated in a jurisdiction recognised by the Exchange and;
3) the fund has a separate Investment Manager which is regulated in a jurisdiction recognised by the Exchange with a minimum of two years track record achieved whilst being regulated; and
4) reviews carried out as part of the application process on the Principals of the Fund (including the Investment Manager) are satisfactory."
Self Managed Funds without a Regulated Investment Manager
The Market Authority will review unregulated, closed ended, self-managed funds that have no regulated investment manager on a case by case basis and will take a number of factors into consideration.
These factors include considering the relevant expertise of the directors of the fund in relation to managing assets of the underlying investment type (within the context of fund management experience). Where it is deemed appropriate (i.e. the directors do not possess the relevant fund management experience in the relevant asset class), there must be a separate, independent investment advisor appointed that has suitable expertise and experience (to the satisfaction of the CISX utilising the two year track record principle noted above)
In addition to evaluating the experience of the directors, the application process may also require reviews to be undertaken on the principals of the fund (including all parties to the issuer and their principals (i.e. property manager, investment advisors and directors of the fund)) which must be satisfactory to the Market Authority.
The fund must also be incorporated in a jurisdiction recognised by the CISX.
Existing Listed Funds
The guidance note also draws attention to the fact that if an existing listed fund (whether regulated or otherwise) is suspended (or has pending regulatory or investor protection issues under advisement by the CISX), then further issues by the issuer or new applications for listing from the same source will not be considered appropriate by the Market Authority until the suspension is lifted or the investor protection issues are resolved to the satisfaction of the CISX.
Please note that the guidance note has been issued to its members "for information only" and may be amended by the CISX. For this reason, we would recommend seeking early consultation with the CISX on all aspects of suitability and eligibility of an application for the listing of an unregulated fund. The guidance note is however a clear and positive step taken by the exchange in response to its members' requests. These measures will hopefully lead to an increased number of funds listed on the CISX in 2012.