EU Market Abuse Regulation increases the attraction of The International Stock Exchange for listing high yield bonds
15 June 2017
EU Market Abuse Regulation and its implications
The International Stock Exchange (TISE) (formerly known as The Channel Islands Securites Exchange or CISE) has experienced an increased interest in listing specialist securities, particularly high yield bonds, since the introduction of a new European Union (EU) market abuse regime on 3 July 2016, effected as a result of the new EU Market Abuse Regulation (MAR).
The introduction of MAR has had a number of implications for issuers of debt securities who usually list on EU exchanges. Of these, the disclosure requirements, including the need to compile and maintain insider lists are seen as the most burdensome for issuers. While issuers of debt securities listed on the regulated markets of EU Member States were already subject to existing EU market abuse regulation, MAR will extend beyond those regulated markets to other organised trading facilities and multilateral trading facilities. The extension means that issuers of debt securities on unregulated markets across the EU will now be subject to MAR.
This has led to increased interest in a listing on TISE by both new issuers and issuers with existing high yield bonds already listed. Historically, Ireland and Luxembourg have been the markets of choice for high yield bonds but the Channel Islands may now be a more attractive market for issuers. This is borne out by the number of issuers who have either migrated existing debt listings or listed new bonds on TISE in recent weeks.
MAR has no impact on securities listed on TISE
MAR has direct effect in all EU member states. The Channel Islands are not part of the EU and therefore MAR does not apply to debt securities listed on TISE. Notwithstanding this, The International Stock Exchange Authority (TISEA) has committed to continue to apply global standards of regulation proportionate to the nature of its business while remaining competitive. It has reviewed and amended its Listing Rules and Model Code For Securities Transactions by Persons Discharging Managerial Support. The important point to note is that because of the nature of specialist securities and the participants in their issue, ownership and trading, issuers with specialist securities listed under Chapter 8 (which includes debt securities) of the Listing Rules have no obligation to implement the Model Code and therefore are not subject to the changes to the Model Code that have been made as a result of MAR. The pragmatic and competitive approach of TISEA has ensured the ongoing and increased attractiveness of listing on its exchange.
Advantages of TISE
Other advantages of TISE include:
- headquarted in Guernsey and with an office in Jersey, TISE is located in close proximity and with good links to the UK. The Channel Islands also operate in the UK time zone;
- securities listed on TISE may also be exempt under the quoted eurobond exemption from the requirement to pay UK withholding tax;
- TISEA adopts a pragmatic and commercial approach to disclosure, which focuses on issues material to an investor, without the lengthy disclosure which may be required for other stock exchanges operating under the EU Prospectus Directive;
- TISEA has a responsive approach and listing applications can typically be completed in three to five weeks from start to finish although, as sponsor, we will always seek to ensure that the listing timeline fits in with wider commercial requirements;
- initial and annual fees are extremely competitive compared to other similar exchanges and more reasonable compared to larger exchanges;
- TISEA operates under global standards of regulation in a manner proportionate to the business being carried out so that there is investor protection but issuers are not unduly burdened;
- TISEA does not insist on the appointment of a local paying agent and many listings are achieved without any paying agent being appointed;
- TISEA is flexible in its accounting requirements and will not require the adoption of international accounting standards or international financial reporting standards, provided that an accounting standard acceptable to the Exchange is used; and
- in respect of accounting requirements for guarantors, if the guarantors are within the same group as the issuer, TISE will accept group consolidated accounts and if such guarantors represent 75% of the assets and revenue of the group, audited accounts for the remaining guarantors will not be required.
Procedure for listing
The typical procedure for listing high yield bonds on TISE is set out below:
- Review of Offering Memorandum and listing criteria: The Offering Memorandum (or in the case of a migration the wrapper document which will wrap around the original Offering Memorandum) prepared by the issuer's UK counsel will form the listing document for the listing application. We will provide comments on the Offering Memorandum to ensure compliance with the disclosure requirements of the listing rules. The listing criteria include: (a) that the securities must be freely transferrable; (b) that the issuer is able to provide three years of audited accounts (unless derogations are available, such as in the case of issuers which are newly incorporated); and (c) that the securities will not be held by retail investors (high yield bonds usually have a high denomination, so this should not be a problem).
- Preparation for initial application: an initial application will be made to TISE. We will need to draft or collate certain ancillary application documents.
- Submission of initial application: following the drafting and collation of the ancillary application documents and once the Offering Memorandum is in near final form, an initial application can be submitted to TISE. The issuer will also need to pay the listing fee to TISE.
- Comments from TISE: while TISE has not committed to specific turnaround times for listings of high yield bonds, they have indicated a willingness to endeavour to meet timing expectations notified to them. Applications can normally be completed in three to five weeks. We will liaise with the issuer, their advisers and TISE to address any comments TISE may have. We will then provide TISE with any information and confirmations they require and update the listing documents in line with their comments.
- Submission of final application: once the listing documents are in final form, these will be signed and submitted.
- Listing: once the bonds have been listed, TISE will issue a grant of listing letter and the high yield bonds will be admitted to the Official List. Providing the final application is submitted prior to 12pm (noon), the listing may take effect on the same day. If the final application is submitted after 12pm (noon) the listing may take effect on the next working day.
This summary reflects the current position under the listing rules and TISEA's working practices. These may change from time to time at the discretion of TISEA.
Bedell Channel Islands Limited (BCIL)
BCIL is a Category 1, 2 and 3 listing member of TISEA enabling it to act as a sponsor on all categories of listings. BCIL has a dedicated debt listing team and has experience of acting as sponsor and/or adviser to a significant number of specialist debt securities including high yield.
Bedell Cristin was appointed by The International Stock Exchange Group Limited to act as key adviser in connection with its equity listing. The transaction saw Bedell Cristin provide legal advice in both Guernsey and Jersey and BCIL also acted as listing sponsor.