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Greg Wojciechowski, Bermuda Stock Exchange

BSX leads the way for ILS listings

Last year proved to be hugely successful for the Bermuda Stock Exchange (BSX). From a pure growth perspective, the BSX ended 2016 with a total market capitalisation of USD343.8 billion, up more than 41 per cent on the previous year. The same was true of trade volume. The RG/BSX Index closed out the year at 1,923.79, up 47.52 per cent on the calendar year 2015, with a reported 31.75 per cent increase in trading volume, which saw 8.2 million shares traded. 

Commenting on the performance of BSX, its Chief Compliance Officer, James McKirdy, said that 2016 saw positive listing activity across most sectors, including international equities, debt, collective investment vehicles, and insurance-linked securities (ILS). He noted that international debt-listing activity was particularly strong, with the number of listed securities more than doubling from 55 to 125; this brought the total number of listed securities to 763 at the time of writing. 

"There were also a record number of new ILS listings, 61 in total, with a capitalisation value of USD6.157 billion, including seven new Variable Rate Note Programmes and 19 new Notes under established Programmes," confirmed McKirdy. 

In total, the number of ILS listed vehicles grew from 151 to 175 (a 16-per-cent increase), while the overall value of these securities grew from USD19.21 billion to USD21.22 billion. Since it was established in 1971, the BSX has evolved to become the leading fully‑deployed electronic offshore stock exchange. 

Given its track record in deploying a market structure that meets the needs of the domestic market while adhering to international standards of market operation, the BSX has been able to target niche market opportunities; most notably, though by no means exclusively, the ILS market.

As BSX President and Chief Executive Officer Greg Wojciechowski (pictured) is keen to emphasise, the BSX supports a variety of other products, including those emanating from the global asset management sector. As a result the BSX has over 300 collective investment fund structures listed (320 to be precise).

"Of the 763 listed issuers, 320 are collective investment vehicles and 178 are ILS. We also have 125 international fixed-income products. We have some collective investment vehicles that are focused on the Asian markets, some on emerging markets, and the same applies for ILS, providing risk coverage to a wide range of global markets. For example, we had the first China ILS created and listed on BSX."

The stock exchange in any jurisdiction has a specific responsibility and that is to provide a foundation for the domestic economy for investors to be able to invest or raise capital. It's a very important platform for public financing. In order for exchanges to do that, and to expand their product base, they need to have a core platform and regulatory framework in place, which BSX has. "Overall, we are building the platform to support a range of innovative strategies," confirms Wojciechowski.

As Bermuda is nestled between two of the deepest capital markets (North America and Europe) and two of the largest insurance markets (London and New York), Wojciechowski says that it made sense for Bermuda to become a centre of excellence for the convergence of the capital markets and the insurance industry. 

"ILS, which is a financing vehicle for the transfer of risk, is a sweet spot for us because it is a capital market instrument," adds Wojciechowski.

Another important milestone for BSX in 2016 was its appointment to the Board of Directors of the World Federation of Exchanges (WFE), the global association that represents more than 200 market infrastructure providers, including exchanges and centralised clearing houses (CCPs). It is the only offshore exchange with full membership of the WFE. This is something that Wojciechowski is particularly proud of.

Whilst it has been a full member of the WFE since 1999, he believes this achievement is testament not only to the "hard work of the entire BSX team, but also to the developing domestic capital market that is evolving around the BSX. It is very encouraging that a smaller exchange such as the BSX can play an integral role in accelerating the development of its domestic market while providing a platform to support the global capital market mandate."

There are several reasons as to why the BSX is so appealing to those looking for an offshore jurisdiction to launch listed products. 

Firstly, from a technology perspective, the BSX's trading and settlement platform is specifically designed to accommodate the listing and trading of sophisticated instruments, including medium-term and credit-linked notes; asset-backed securities, convertible and insurance securitised bonds, catastrophe bonds, Eurobonds and other special purpose debt securities.

Secondly, Bermuda has a sound regulatory environment. The BSX lists institutional structures, overseen by a commercially sensible regulatory environment that meets international standards. The Exchange does not impose minimum capital requirements or investment restrictions (with the exception in most instances of disallowing a fund to take control of its underlying investments, unless the fund restricts investment to qualified investors) and allows flexibility for hedge funds and the use of prime brokers.

Thirdly, BSX provides effective speed to market to fund sponsors. It aims to respond to listing enquiries within 48 hours and, on average, the entire approval process can often be completed within three weeks. As Wojciechowski points out, another key advantage is that fund sponsors can commence the BSX listing process whilst simultaneously seeking approval from the Bermuda Monetary Authority for incorporation in Bermuda. 

With respect to continuing obligations, those who choose to list ILS funds or collective investment vehicles on BSX are required to: 

1. Provide prompt notification to BSX and shareholders of material events to allow them to evaluate the financial position of the fund and to avoid the creation of a false market;

2. Submit NAV calculations;

3. Provide audited annual reports and accounts, in addition to preliminary results;

4. Provide copies of shareholder notices or circulars.

"We are looking for information disclosure that clearly sets out risk parameters of the structure, to ensure there is full disclosure so that an investor can make an informed investment decision in respect of the investment merits of that security, and in relation to their risk tolerance," explains Wojciechowski.

The BSX also makes sure that entrenched in the regulations material events must be fully disclosed to the market; anything that could affect trading volume, price, or the investability of a security. This is to ensure that the investor is made aware of something that can potentially impact the value of their investment.

Such has been the success of Bermuda's ILS market that Wojciechowski uses the analogy of Silicon Valley whereby, with the help of BSX, Bermuda has become a global hub for risk transfer. 

Wojciechowski confirms that it has been a good start to the year for BSX. "The ILS pipeline is strong and we are encouraged by the response of the London and New York market in respect of the BSX emerging as a platform for international debt issuers. We are getting a lot of global market interest in providing listing services for international debt structures; high-yield structures and so on. 

"The Exchange's efforts have been focused on providing a solid regulatory and operational backbone for Bermuda and her domestic capital market. With that solid backbone, the BSX will continue to provide support to the global capital markets. The BSX infrastructure, its regulatory framework, the affiliations and recognitions it has achieved have fortified the BSX brand internationally and clearly set it apart from its immediate competitors," he concludes. 

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