Vol 11 (2014) - Issue 2

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Restructuring of the Channel Islands Stock Exchange

The Channel Islands Stock Exchange (the ‘CISX’) had built a strong reputation with advisers in the UK and further afield over nearly 15 years and had become a popular venue for listing debt and investment fund securities, as well as the equity securities of some trading companies.
However, at the end of 2013, the CISX was restructured so that the business of the company was transferred to a new company, the Channel Islands Securities Exchange Authority Limited (the ‘CISE’), which became the new operator of the investment exchange. The transfer occurred by way of a Guernsey scheme of arrangement which is broadly similar in its approach to an English scheme of arrangement but before the Guernsey courts under Guernsey companies legislation.
So, why the sudden change?

What were the drivers for the CISX to have to reincarnate itself as the CISE?
In October 2013 the chairman of the CISX wrote to exchange members informing them that there were regulatory investigations being carried out the Guernsey Financial Services Commission (the 'GFSC') as regards certain historic activities of the CISX. These investigations had been going on for some time but it seemed that it was becoming increasingly clear to the CISX that the costs of the investigations to the CISX plus potential liabilities stemming from the investigations were increasing.
Structurally the CISX had always operated on a single entity basis, with all commercial, business development, marketing and listing authority operations being undertaken by one management team. It is understood that the GFSC investigations brought to light certain concerns with this structure in terms of governance.
The CISE was proposed via a scheme of arrangement in order to be able to move forwards with a new operating platform and to ensure the continued success of the listing business which had been attracted to the jurisdiction.
Structurally, the CISE is a subsidiary of another wholly owned company which has a separate board to that of the CISE and therefore there is a split of functions between the listing authority which reviews and approves listings and which considers changes to listing rules on the one hand, and the owners and directors of the holding company who have a focus on the other activities relating to the commercial enterprise and functioning of the exchange generally.

Are there any differences between the old and new exchanges?
The restructuring occurred with the blessing of the GFSC and the CISE has also received nearly all the same international recognitions and memberships as the CISX had, namely:
1) designation as a recognised stock exchange by HM Revenue & Customs under section 1005 of the Income Tax Act 2007;
2) recognised stock exchange status by the Australian Securities Exchange;
3) membership of the International Capital Markets Services Association; and
4) affiliate membership of IOSCO.

An application to the US Securities and Exchange Commission for designated offshore securities market status has also been made and a response is anticipated shortly.
The CISE also now has the benefit of limited liability as a result of legislation introduced in Guernsey with effect 20 December 2013 when the scheme completed. Subject to limited exceptions, the CISE shall incur no civil liability unless the action of the CISE, or any omission, was in bad faith.