Bermuda: Offshore Business Sectors
The Bermuda Stock Exchange (BSX) opened in 1971. It is a fully electronic open market with daily trading and centralised settlement. The BSX has traditionally been owned by three Bermuda banking institutions, and in 1992 was formed into a limited liability company. Trading memberships on the exchange are freely available to international brokers who meet BSX requirements.
The Exchange’s fully electronic clearing, settlement and depository service was installed in 2001. By the end of 2002 all of the domestic securities listed on the BSX at that point were depository eligible.
The BSX has also in recent years introduced new regulations designed to make listing on the Bermuda Stock Exchange easier and clearer. The Exchange said the new regulations updated exchange rules for its members and standardised the wording of listings.
According to the exchange, the most significant change was the introduction of a new section, Section VI, in the International Regulations, which was designed to attract the listing of derivative warrants, a new market niche for the BSX.
BSX listings and compliance manager James McKirdy explained at the time that: "The changes reflect input provided by members of the exchange and listed issuers over an extended consultancy period and experience garnered by the listings and compliance department during the last several years.'
Changes included a streamlining of the prospectus requirements for secondary listings of International Equity Securities (Section III). Under the new regulations issuers were given permission to submit their latest audited financial statements in lieu of a prospectus.
The exchange also formalised the waiver for disclosure requirements, as previously granted by the listings committee on an ad hoc basis, for restricted market collective investment vehicles, as defined in Section IV, in respect to the disclosure of investments and shareholder holdings.
The Bermuda Stock Exchange (BSX) is a Recognized Investment Exchange under the Investment Business Act 2003, and operates as a Self Regulatory Organization subject to regulation by the Bermuda Monetary Authority. The BMA is a full member of IOSCO. The BSX was the first offshore exchange (in 1996) to receive Designated Status from the US SEC. The BSX has issued regulations for Trading Membership, Domestic and International Listing.
In July 2004 Bermuda passed the Criminal Code Amendment Act 2004, which made market manipulation and insider trading criminal offenses for the first time in the jurisdiction. The legislation imposed fines of up to BMD100,000 and a five year jail sentence for market manipulation, and a seven year custodial sentence and BMD175,000 fine for those found guilty of insider trading.
The government explained that the new laws were put in place following reviews of the financial services sector conducted by the International Monetary Fund (IMF) and the UK government.
The introduction of Part IV of the Act during the course of 2004 resulted in the designation of the BSX as a recognised investment exchange under the Act, as previously stated. This established the BSX more formally in the investment business regulatory framework as a Self Regulating Body, responsible for regulating its members and its marketplace, subject to the Authority’s overall supervision. In large part, however, the effect was to formalise the regulatory arrangements for the BSX that were already in place.
In August, 2005, BSX was granted Designated Investment Exchange (DIE) status by the UK Financial Services Authority (FSA). Designation as a Recognised Stock Exchange by the UK's HM Revenue & Customs (HMRC) was awarded in December 2007. This will give any Eurobond listed on the BSX the same exemption from withholding on interest payments that currently exists at EU exchanges.
It emerged in January 2007 that business on the Bermuda Stock Exchange had been given a considerable boost in 2006 after official recognition was granted by onshore authorities.
In the second half of 2005, the BSX was granted both Approved Stock Exchange status by the Australian tax authority, in addition to the aforementioned designation by the UK’s Financial Services Authority.
The two designations, coupled with the strong international BSX brand and the recent consolidation activity in the global stock exchange industry, resulted in a heightened level of interest in BSX products and the Exchange itself, the BSX said.
The BSX/Royal Gazette Composite Index ended the year at 4,860.32, up 25.1% compared with 2005. Domestic trading volumes increased from 2.9 million shares to 3.9 million shares with a corresponding value of over BMD120 million, one of the highest value turnover levels in the Exchange’s history.
The total market capitalization of the BSX as at 31 December 2005 (excluding fund listings) stood at over BMD350 billion of which approximately BMD2.6 billion represented the domestic market.
As at 31 December 2006, 428 issuers were listed on the BSX. Included in new listings were Jupiter Adria Limited, an international equity issue and 3 international derivative warrant issues. There were also 22 new collective investment vehicles listed and 49 subsequent issues processed during the year, including the local BAS and BF&M Rights issues.
In making the year-end announcement, BSX President and Chief Executive Officer Greg Wojciechowski noted:
“2006 has been a very exciting year for the BSX in terms of its strategic development. The receipt of the recognitions noted above has generated interest in the Exchange and further punctuated its role as the premier, fully operational offshore stock exchange. The BSX’s longevity in this business, its electronic infrastructure, its prudent regulatory approach and strong brand will position it well to take advantage of the exciting opportunities that are now presenting themselves in the quickly changing global stock exchange industry.”
The BSX also reported that 2007 was a significant year both for the Exchange and the continued development of the domestic capital market.
Highlights of the year, according to the Exchange, included an increasing number of international issuers and companies listing their securities on the BSX, record domestic trading volume and the designation of the BSX by HMRC as a Recognised Stock Exchange.
The BSX/RG Composite Index ended the year at 4,969.92, up slightly from the previous year’s close. Domestic trading volumes increased from 3.9 million shares to 5.3 million, with a corresponding value of over BMD165 million, the second highest value turnover level in the Exchange’s history.
The total market capitalization of the BSX as at 31 December 2007 (excluding fund listings) stood at over BMD350 billion, of which approximately BMD2.7 billion represented the domestic market.
As at 31 December 2007, 543 issuers were listed on the BSX. Included in the new listings in 2007 were the Bermuda based insurers Flagstone Reinsurance Holdings Limited, and Lancashire Holdings Limited. The Exchange also listed 110 international derivative warrants listed by divisions of CALYON and Deutsche Bank. There were also 20 new collective investment vehicles listed, and 10 subsequent issues processed during the year.
The BSX was not immune to the general problems of stock exchanges in 2008. The Bermuda market followed the trend by falling 30% in value as reflected by the BSX/RG Composite Index, which ended the year at 3417.00, a change of 1,553 points in total. Offsetting this decline was a market dividend yield of over 5%, which resulted in a net return of negative 25%. Domestic trading volumes increased from 5.3 million shares to 6.8 million with a corresponding value of over BMD99m.
The total market capitalization of the BSX on December 31, 2008 (excluding fund listings) stood at over USD226bn of which approximately USD1.9bn represented the domestic market.
On December 31 2008, 599 issuers were listed on the BSX. Included in the new listings were the Variable Note Programmes of Valais Re and Blue Coast Limited, underscoring the BSX’s commitment to provide market opportunities and support to the Bermuda insurance market. The Exchange also listed a further 55 international derivative warrants originating from a division of CALYON. There were also 9 new collective investment vehicles listed and 9 subsequent issues processed during the year.
In 2008, the BSX was granted membership to two international industry groups acknowledging the work accomplished in respect of the exchange’s regulatory and operating environment. In February, the BSX was granted membership to America’s Central Securities Depository Association (ACSDA) and in August the BSX joined the European Securitisation Forum.
ACSDA acts as a forum for the exchange of information and guidance among its members to promote best practice in securities depository, clearance, settlement, and risk management services. ACSDA currently has 22 members mostly located in the Western Hemisphere.
The European Securitisation Forum (ESF) is a broadly based professional forum through which participants in the European securitisation markets advocate their common interests on important legal, regulatory, accounting and market practice issues. The ESF is comprised of investors, investment banks, legal firms, securities brokerage firms, stock exchanges and other financial services institutions.
In making the year-end announcement, BSX President and Chief Executive Officer Greg Wojciechowski stated: “There is no doubt that the results of the world’s markets in 2008 were nothing less than stunning. The first half of 2008 saw market’s trading at record price and volume levels which was followed by a complete reversal of the trend in the second half resulting in global markets closing at 30%-50% less than where they began the year. At times market volatility was so intense that some markets chose to halt trading in the hope that a pause would allow investors to regain a sense of composure and return to a less volatile environment.”
The Bermuda Electronic Securities Trading (BEST) system started in late 1998. The trading engine works on a system of priority rules and tries to match orders with those already in the system. Unmatched orders are then queued according to the time they are received, waiting to be matched. In early 2001, BSX implemented GlobalSCRIP, an electronic settlement system, which provided an electronic registry for companies listed on the BSX.
Settlement occurs on a rolling T+3 day cycle and settlement documents are produced through the Exchange. In place of the current shares in certificate form, Bermuda securities will be registered - GlobalSCRIP enables a much easier facility for exchanging shares which will enhance the investor's ability to buy or sell local shares. This also means that the centralised registration facility will separate and track shares eligible for Bermudian ownership as opposed to those available to non-Bermudians.
In 2007, the trading and settlement technology of the Exchange was upgraded to the next and latest version of the OMX trading platform, keeping the Exchange’s mission critical systems in line with cutting edge technology for an operation of its size.
The BSX has also launched a facility to allow the exchange of shares in hedge fund investments, a process which has proved problematic in the past. To do this, the BSX embarked upon a joint venture with PlusFunds.com. The BSX is the stock exchange on which fund shares are listed. The BSX permits trading by non-United States investors in fund shares, 22 hours per day, 6 days per week.
In 1996, the BSX created a trading facility allowing members to make crossing trades on the BSX. A crossing is a transaction in which one trading member handles both sides of the trade. These trades, which may be made at any time, may include international securities not listed on the BSX. Crossings on the BSX now total over BMD7 billion per month.
In 2001 the BSX also introduced new regulations to make listing on the Bermuda Stock Exchange easier and clearer. The Exchange said the new regulations updated exchange rules for its members and standardised the wording of listings. According to the exchange, the most significant change was the introduction of a new section, Section VI, in the International Regulations, designed to attract the listing of derivative warrants, a new market niche for the BSX.
The BSX lists various types of debt security including eurobonds, which, by their nature, are purchased and traded mainly by a limited number of institutional investors who are generally very knowledgeable in investment matters. The BSX listing regulations are streamlined and rely more on full disclosure than prescriptive regulations for investor protection purposes. This means that debt listings can be completed within a matter of days. Only new applicants to the BSX require the assistance of a BSX Trading Member or Listing Sponsor. Subsequent issues are not required to be sponsored. Debt securities must be eligible for deposit in Euroclear, Cedel, the Depository Trust Company or the BSX’s GlobalScrip system or some other settlement system acceptable to the BSX.
BSX has pages on Bloomberg and Reuters on which investment fund prices, NAVs and deals are displayed daily. BSX also offers the Offshore Funds Network through its own web server on which each fund can have its own page.
According to the 2011 annual report published by the Bermuda Monetary Authority, 2011 was considered a "milestone year for BSX. Not only did the exchange celebrate its 40th anniversary of operation, it also hosted the General Assembly of the America’s Central Securities Depository Association; brought the market capitalisation of listed insurance linked securities to over $3.3 billion; was granted designated status under Canada’s Income Tax Act; and announced a strategic investment by the TMX Group."
The report went on to say that: "The total market capitalisation of the BSX as at 31st December 2011 (excluding fund listings) stood at over $341 billion of which approximately $1.4 billion represented the domestic market. Total trading volume for the period was 6.5 million shares with a corresponding value of $25.3 million compared to 64 million shares with a corresponding value of $112 million for 2010. The Royal Gazette/ BSX Index closed the year at 1,044.65 which is 9.2% lower than 2010. The year-on-year decline in listed securities from 807 in 2010 to 613 in 2011 was mainly the result of the delisting of over 200 equity derivative warrants. The Exchange saw net growth in investment funds vehicles, international fixed income structures and insurance-related security listings.
As at 31st December 2011, 613 issuers were listed on the BSX, raising the number of insurance linked securities listed on the Exchange to 25 with an approximate market capitalisation of $3.73 billion. There were 38 new investment funds, four international equities and three fixed income securities listed and six subsequent issues from listed issuers."