In December 2013, following the restructuring of the Channel Islands Stock Exchange (the "CISX"), the Channel Island Securities Exchange Authority Limited (the "Exchange") commenced operations. The Exchange provides a listing facility and market for companies to raise capital from investors worldwide based on a bespoke trading platform. The Exchange's strategy for the future, in addition to maintaining and enhancing their core business sectors, is to look to diversifying their business base. As part of this strategy the Exchange has carried out a comprehensive review of the Chapter 8 Listing Rules (the "Listing Rules") and a revised chapter entitled 'Specialist Securities' will be published and come into effect on 19 October 2015.
In addition to the revised Listing Rules, the disclosure requirements which should be incorporated into the listing documents for all listings under Chapter 8, as set out in Appendix IX, Part D, have been updated. The Exchange has also produced a Chapter 8 Policy Guidance Note (the "Guidance Note") to be read in conjunction with the revised Listing Rules.
The Exchange has built flexibility into the Listing Rules as well as formalising procedures which were already carried out in practice. The Exchange is open to exploring new opportunities, including expanding the types of debt securities which may be suitable for listing as well as the type of debt issuers, to diversify their business base and the amended Listing Rules reflect this.
This briefing summarises the key changes to the Listing Rules and the revised disclosure requirements.
Emphasis is given in the revised Listing Rules to the fact that securities listed under Chapter 8 should only be issued to sophisticated investors. A statement confirming that "These securities are only intended to be offered in the primary market to, and held by, investors who are particularly knowledgeable in investment matters" must be included in the listing document.
Trading companies and convertible debt
The Exchange has expanded the types of debt issuers which may be considered suitable for listing on the Exchange as well as the types of debt securities. This is good news for trading companies going forward. A trading company, provided the debt is being issued to another group company or to sophisticated investors, may seek to list debt under Chapter 8. Previously a trading company had to list its debt under Chapter 6 of the listing rules, a much more onerous regime. This however does not apply to convertible debt.
In relation to other companies the Exchange may consider certain convertible debt securities suitable for listing where the equity into which the debt converts is listed on a recognised exchange. In such cases the issuer may be a company whose equity is listed on an acceptable exchange, a wholly owned subsidiary of the parent company with listed equity, or as agreed with the Exchange. The Exchange has experienced an increased volume of convertible bonds listings in the first 6 months of 2015 and sees this as a significant pipeline of new business.
In addition to the above changes, the Exchange has given itself the scope and flexibility to consider listing securities issued by "other companies" and this would include debt securities issued by investment companies. A general provision has been included at Listing Rule 8.4.11 to consider other categories of securities. We would recommend early contact be made with the Exchange to discuss such possible listings.
A number of amendments have been made in the Listing Rules with reference to an issuer's accounts. The most significant amendment is that there is now a requirement for issuers of debt securities to submit their annual accounts (audited or otherwise) to the Exchange within 6 months of the period end to which they relate unless exempted under the Listing Rules or otherwise agreed with the Exchange.
For an issuer required to publish its audited accounts under the laws of its jurisdiction of incorporation then the audited accounts must be published on the Exchange's website or a link provided to publicly available information placed on the internet. Where an issuer is not so required to publish audited accounts, then a copy of the annual report and accounts must be provided to the Exchange.
More flexibility has been incorporated into the Listing Rules in relation to the accounting standards in accordance with which the annual accounts may be prepared and audited and in particular the Exchange has the flexibility to agree to accounting standards other than UK Accounting Standards, US Accounting Standards or International Accounting Standards and equivalent auditing standards.
The Listing Rules (LR 18.104.22.168(b)) now provide that the issuer, if it has subsidiaries, must produce consolidated accounts for the issuer and its subsidiaries. However, the Guidance Note provides that the Exchange may derogate from such requirement where an issuer is not required to produce consolidated accounts by the laws of the country or territory in which it is established, provided that consolidated accounts are prepared by an appropriate member of the issuer's group and these consolidated accounts are available for review by the investors and by bona fide potential investors.
A number of amendments have been made to the application procedure to reflect current practice. Final application documents must be received by the Exchange in electronic form by email no later than midday on the intended listing date. Also worthy of noting is that directors' declarations may be waived in specific circumstances.
The Listing Rules have been updated in a number of areas to clarify the continuing obligations and also reflect current practices. The following should be noted.
The Exchange must be notified, within 14 days, of the following:
- any change in the rights, powers or privileges of any class of listed securities and any changes in the terms of any class of listed securities into which listed securities are convertible or for which they are exchangeable;
- any decision to call, purchase, redeem or cancel any of the listed securities by the issuer and, if applicable, an application to de-list the securities will need to be made to the Exchange;
- any change to the constitutional documents of the issuer;
- any appointment or resignation or removal of a director (the reference to director includes a corporate director). Any appointment must specify whether the position is executive or non-executive and whether the director has a specific function or responsibility; and
- any change to the disclosed function or responsibility of a director, including the effective date of the change.
A completed Appendix IV or V declaration must be filed with the Exchange within the 14-day period. An announcement on the Exchange's website must be made with respect to any of the above.
Where an alternate director is appointed and regularly performs the functions of a Director of the issuer then they will be required to complete a director's declaration. This, however, may be waived if the alternate director is appointed on an ad hoc basis.
The issuer is now required to notify the Exchange immediately of any change to its auditors or registered address.
It should be noted that the Guidance Notes include a requirement that if documents submitted to the Exchange require same-day action then they must be lodged with the Exchange no later than midday on the relevant notifiable date.
Listing documents: disclosure requirements
Appendix IX, Part D, which sets out the disclosure requirements for the listing documents for Specialist Securities has been updated and now includes a number of new additional disclosure requirements:
- a summary of the nature of the business of the issuer;
- where an issuer has produced audited or interim accounts if, following the period to which such accounts relate, there has been a material adverse change to the issuer, its group structure, its business or accounting procedures or the financial trading position of the issuer then details of the changes, together with any available accountant's report must be included or appended to the listing document or an appropriate negative statement included;
- details of all material interests and potential conflicts of interests of all interested parties to the application;
- any relevant risk warnings;
- if more than 9 months have elapsed since the end of its financial year and the issuer has entered into transactions, other than in connection with the issue of debt, then interim financial statements covering the 6 months from the financial year end must be included or appended to the listing document; and
- additional information relating to guarantees, security or commitments including any limit on the life of the guarantees, security or commitments and whether they are intended to cover principal or interest or both and if any such credit support is provided by group entities.
The Listing Rules, including the amended Appendix IX, Part D will be available on the Exchange's website from 19 October 2015 together with updated checklists, application forms and the Guidance Notes. The amended Listing Rules have clarified many of the day to day procedures and practices which is useful for sponsors and issuers alike and helpfully have built in greater flexibility for the Exchange to consider additional companies or types of securities for listing on the Exchange.
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.