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") has experienced increased demand for listing specialist securities, particularly high yield bonds, since the introduction of EU Market Abuse Regulation ("MAR") in July 2016.
The introduction of MAR has had a number of implications for issuers of debt securities who historically listed 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 has extended beyond those regulated markets to other organised trading facilities and multilateral trading facilities. The extension means that issuers of debt securities listed on unregulated markets across the EU will now be subject to MAR.
This has led to increased demand to list on TISE by both new issuers and issuers with existing high yield bonds already listed. Historically, Ireland (GEM) and Luxembourg (Euro MTF) have been the markets of choice for high yield bonds but the Channel Islands is now 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 and at the end of December 2019 there were 212 high yield bonds listed on TISE.
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, TISE 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 Chapters 5-7 (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 TISE 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;
- TISE 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;
- TISE has a responsive approach and listing applications can typically be completed in two to four weeks from start to finish although, as listing agent, we will always seek to ensure that the listing timeline fits in with wider commercial requirements;
- initial and annual fees are competitive compared to other similar exchanges and more reasonable compared to larger exchanges;
- TISE 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;
- TISE does not insist on the appointment of a local paying agent and many listings are achieved without any paying agent being appointed;
- TISE is flexible in its accounting requirements. However, accounts must be prepared according to a recognised international standard (such as UK GAAP or US GAAP) or in line with what is commonly accepted for the jurisdiction in which the issuer is established; and
- in respect of accounting requirements for guarantors, the latest audited accounts of the guarantor must be provided. If the guarantors are within the same group as the issuer, TISE will accept group consolidated accounts.
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/US 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
We would expect to receive any comments from TISE within three business days from the date of submission of the initial application. Applications can normally be completed in two to four weeks (shorter if required). 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.
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 at 18.00 (GMT) otherwise the listing will take effect on the next working day.
This summary reflects the current position under the listing rules and TISE's working practices. These may change from time to time at the discretion of TISE.
Bedell Channel Islands Limited ("BCIL")
BCIL is a Category 1, 2 and 3 listing member of TISE enabling it to act as a sponsor or listing agent on all categories of listings. BCIL has a dedicated debt listing team and has experience of acting as listing agent and/or adviser to a significant number of specialist debt securities including high yield.