Cayman Islands: Country and Foreign Investment
The Cayman Islands Stock Exchange (CSX) is a private limited company owned by the government but operated as an independent entity under the Stock Exchange Law 1996. The CSX, which commenced operations in July 1997, was originally set up to provide a listing facility for the specialist products of the Cayman Islands, namely offshore mutual funds and specialist debt securities (known as SPVs = Special Purpose Vehicles). See Offshore Business Sectors
By mid-2007, the CSX had more than 1,400 listings and a market capitalisation of more than KYD123 billion.
The CSX is regulated by the Cayman Islands Stock Exchange Authority and is not bound by European Union Listing Directives or US SEC regulations. Members must be local entities, either Listing Agents or Brokers, who have met the licensing requirements and have adequate staff. The CSX has approved a number of Listing Agents who are Cayman Islands based lawyers, accountants or other financial-based service providers. All issuers, other than issuers of international debt securities and securities which are subject of a secondary listing, must appoint a Listing Agent in connection with their application for listing. The Listing Agent will provide a formal link between the Issuer and the Exchange and will be responsible for advising the Issuer on all aspects of the listing process. To obtain a listing on the CSX the Issuer of a Security is required to pay a fee, both at the point of application and annually to maintain the listing.
In conjunction with Bloomberg, the CSX has developed a fully electronic listing and trading platform and a dedicated news wire service. The trading facility is "order driven", displaying a buy and sell price throughout the trading day. Investors trade with orders being displayed on-screen through the central system and the trades are executed automatically when buyers and sellers are matched.
In July 1999, the CSX was granted approved organization status by the London Stock Exchange. The CSX was able to demonstrate that its regime for listed securities meets all the detailed criteria for inclusion on the list of approved organizations. This was the first time an offshore stock exchange had been added to the list. The approved organization designation means that securities listed on the CSX are eligible for trading in the LSE's international equity market and for quotation on the SEAQ (Stock Exchange Automatic Quotation) international trading system.
More recently, the facility has been expanded to include global depositary receipts and derivative warrants. The CSX has developed rules for these specialist products, which are designed to raise capital from institutional investors. Issues of depositary receipts and derivative warrants may have to be listed to meet the investment requirements of such investors.
Unsponsored depositary receipts are created when a broker or bank believes there is sufficient investor interest in a foreign stock to make it worthwhile to set up a deposit programme. The broker or bank purchases the underlying shares, deposits them in the home country and sells depositary receipts. The foreign company itself is not directly involved. By introducing a listing facility for unsponsored depositary receipts, the CSX offers an opportunity for investors to participate in this market to an even greater extent.
Derivative warrants give the holder the right - but not the obligation - to buy or sell a share, or any other asset, at a fixed price on or before a specified date. The CSX listing rules deal with issues of warrants which relate to equity securities, debt securities, baskets of securities and indices. Derivative warrants meet specialised investment needs and are usually issued by a third party, often using a Cayman Islands special purpose vehicle.
In September, 2003, the CSX introduced rules that will allow the listing of shares in foreign firms on the CSX which previously was restricted only to the listing of domestic stock. "This move was a direct result of expressed requests from international companies for listing and trading on the CSX," said the CSX in its Autumn newsletter. "This change now permits a company incorporated outside the Cayman Islands (a "foreign company") which is (i) a foreign company registered under Part IX of the Companies Law (2003 Revision) and (ii) an exempted or non-resident company to apply for listing and trading on the CSX."
With effect from 4 March 2004, the UK's Board of the Inland Revenue designated the Cayman Islands Stock Exchange as a "recognised stock exchange" under section 841 of ICTA. As a result, interest paid on securities listed on the Cayman Islands Stock Exchange can now be paid without deduction of UK tax. Similarly, securities listed on the CSX are now regarded as 'qualifying investments', allowing them to be held directly in Personal Equity Plans (PEPs) and Individual Savings Accounts (ISAs).
During 2011, equity security listings on the CSX were rebranded to include listings by smaller mineral and mineral exploration companies mainly based in Central and South America.
As a result of the rebranding and a growth of 36.5% in the Eurobond market, the stock exchange recovered somewhat to end the 2011 year with 1,156 listings (1,113 in 2010) with a market capitalization of USD143.8bn (USD145.7 in 2010). Only one new listing was added during 2012 but strong growth in the Eurobond market increased market capitalization to USD166.5bn.