Part 1: Changes to Listing Agents and Equity Securities

Directors and Listing Agents

The Cayman Islands Stock Exchange (CSX) recently amended its Listing Rules.  As well as tidying up provisions to take into account of recent market and regulatory developments, the new rules include new provisions for directors, new suitability and disclosure requirements for equity issuers and the rebranding of mutual funds as "investment funds" and Eurobonds as "corporate and sovereign debt securities".  The amendments affect chapters 1- 13, but here we look at changes affecting listing agents at Chapters 5 "Listing Agents" and 6 "Equity Securities" (which includes new corporate governance requirements).

Listing Agents: Chapter 5

An expected increase in the number of CSX equity listings and its use of the upgraded XETRA trading platform means that listing agents are increasingly likely to be involved in aspects of secondary market trading of Cayman equities.

Overseas listing agents

One of the most significant changes is the extension of the rules to allow overseas listing agents.  A listing agent may be individual practising attorneys or accountants, or firms, (which includes overseas offices) "in a jurisdiction defined in chapter 1 as being a recognised jurisdiction for investment fund incorporation".  The recognised jurisdictions for investment fund incorporation or establishmentare defined in Chapter 1 as Bermuda, British Virgin Islands, Canada, all EU member states, Guernsey, Hong Kong, the Isle of Man, Japan, Jersey, Malaysia, Singapore, Switzerland, and the United States of America. The exchange reserves the right to extend or reduce the countries included in this list.

Continuing advice

Unless otherwise agreed by the Exchange, issuers of equity securities must have and maintain a listing agent able to provide continuous advice.  Whenever an issuer is required to submit a shareholder circular for approval by the Exchange, that issuer must appoint a listing agent to liaise with the Exchange.

Retail offerings need a Corporate adviser

For retail offerings, a listing agent must also be a corporate adviser, defined as "a firm or company which specialises in corporate finance and is based in a recognised jurisdiction". The adviser may be based outside the Cayman Islands, but must able to deal with the Exchange during its normal business hours.  The corporate advisor must have either acted on at least three equity securities listings on a recognised stock exchange during the last two years, or employ staff who have experience of managing such transactions and have appropriate regulatory authorisation to conduct its business.  Where the issuer is a specialist company (one in which investment is restricted to sophisticated investors) any listing agent entered on the Exchange's register of listing agents may act on its behalf.

Chapter 6 : Equity Securities

Independence of directors

Unless it is a specialist company, an issuing company’s board must have at least three directors, the majority of whom must be independent. The listing document must contain a statement on each director’s independence and details of any potential conflicts of interest which may arise.

Code of practice for directors’ share dealing

In a rule which formalises existing Cayman practice, issuers must require every person who discharges managerial responsibilities, including directors, to comply with the Model Code and to take all proper and reasonable steps to secure such compliance.  If, under the provisions of the Model Code, a director of the company would be prohibited from dealing in its securities, then no dealings in any securities may be effected by or on behalf of an issuer or any other member in its group.  The exception to this rule is where such dealings are entered into in the ordinary course of business by a securities dealing business, or by the company or any other member of its group on behalf of third parties.

Evidence of sufficient working capital

When it applies to list, any issuer which is not a specialist company and which has a trading record of less than three years must demonstrate to the Exchange that the working capital available to the group, including guaranteed proceeds from any new securities offering, will be sufficient for at least 12 months from the date of listing.

Specialist companies: Warning statements to investors   

A specialist company is one in which investment is restricted to sophisticated investors. These will now be required to include a specific investment warning in the listing document that:

“There may be significant risks associated with an investment in the issuer.  The issuer [is/is applying to be] listed on the Cayman Islands Stock Exchange as a ‘specialist company’ which requires that the ownership and transfer of its listed equity securities [is/will be] restricted to investors who subscribe for at least US$100,000 of securities and who represent that they are particularly knowledgeable in investment matters and can afford the loss of their entire investment.  An active secondary market in the securities may not develop.  Prospective investors who are in any doubt should consult their professional advisers as to the suitability of an investment in the issuer.”

Mineral and Shipping companies

There are also new rules for mineral companies rules (rr6.18, 6.73, 6.74 and 6.108) and shipping companies (see rules 6.19 and 6.76-78).

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