Back in July we looked at the changes to the Cayman Islands Stock Exchange (CSX)'s listing rules following the switch to the XETRA platform. In a companion piece we look at why investment funds would chose to list in the Cayman Islands, (such as the UK tax benefits of its HMRC "recognised stock exchange" status)and the benefits listing can offer various types of investment funds. Here we look at the listing process.
Cayman Island Funds
The Cayman Islands is the largest hedge fund domicile in the world, with 75% of the world’s hedge funds incorporated in the jurisdiction. Recognized worldwide as a leading centre for investment funds the islands also offers the 'one stop shop' of local legal advisors who are also listing agents, saving funds both time and money. Funds domiciled in approved overseas jurisdictions are free to appoint directors and service providers in their local jurisdiction, which helps the fund operate efficiently.
Applying for listing: Appoint a listing agent
Unless applying for a secondary listing, the first step for every fund applicant is to appoint a CSX registered listing agent (unless the application relates to a secondary listing). The agent deals with the application and makes sure the applicant is suitable to be listed. The basic requirements for the listing agent to check are that a fund:
a) is domiciled in an approved jurisdiction;
b) has appointed a suitable custodian, who may be an associate of the fund, but must be a separate legal entity from the fund, its directors, the investment manager or administrator.;
c) has appointed an independent auditor;
d) will calculate net asset value at least quarterly.
e) has directors which must collectively, have adequate experience and expertise in the management of funds and individually, take responsibility for the content of the listing document (see below).
f) is able to show that its investment manager has the appropriate expertise and experience, (which the CSX will decide on a case by case basis).
g) Has made sure that all its service providers and directors have disclosed any con?icts of interest that might occur when the fund is operating, and given a clear statement of any cross-class liabilities.
h) has securities which are capable of being traded on an equal basis and freely transferable (although restrictions on transfer can be approved by the CSX).
i) If it is a feeder fund it must restrict investment to quali?ed investors, and prove to the CSX that its investors will have access to su?cient information on the master fund. It must then invest in either a listed master fund or one which is suitable for listing.
j) If it is a closed-ended fund it must have 25% of listed securities in the hands of the public at all times. Its constitution must require prior shareholder approval of material changes to: the constitution or class rights; the creation of additional classes of security; material changes to investment policies, objectives, investment or borrowing restrictions; extension or termination of the fund and any intention to compulsorily redeem all securities.
k) It has prepared its financial information in an acceptable format. Generally, accounts prepared in accordance with UK or US GAAP or International Accounting Standards will comply with CSX ?nancial information requirements. New funds which have not started investing do not need to produce ?nancial statements, but if a fund has been in existence for less than twelve months, it will need to provide the CSX with an audited statement of the NAV of the fund and its portfolio.
The listing agent must then submit a listing document on behalf of the fund, for the CSX to review and provide feedback. The listing agent will generally use the fund’s prospectus, but the document must contain all information necessary for an investor in the fund to be able to make an informed investment decision. As well as general information on the fund, the document will need to include details of the securities to be listed, the redemption and valuation provisions of the fund, its investment policy, details of its directors and service providers, risks and con?icts of interest, fees and expenses and of the fund's assets and ?nancial position (including any audited ?nancial statements).
The fund must make its constitutional documents, key service provider agreements and any ?nancial statements available for public inspection. In addition, umbrella funds, feeder funds and funds of funds must also disclose details of the underlying funds and any special risk factors or con?icts of interest. Property funds must include a portfolio valuation prepared to appropriate international standards by a quali?ed independent valuer, and closed-ended funds must disclose details of any substantial shareholders.
Once the Listing Department is satis?ed with an application, they will submit it to the Listing Committee for approval. If approved, before the fund is admitted to listing, the listing agent needs to file the supporting documentation and the initial listing fee. If the fund is being launched, then listing approval will be granted subject to the successful launch and the closing of the initial o?ering.
When the fund is admitted to listing its details will appear on the Bloomberg system and the CSX's website. Once listed, a fund must continue to comply with its on-going obligations, as speci?ed in the listing rules.
The CSX has positioned itself to be an efficient and costs effective choice for the listing of securities and the combination of existing in a no tax jurisdiction whilst having HMRC “recognised stock exchange” status makes CSX particularly attractive for UK based debt issuer and REIT structures. Solomon Harris is a recognised Listing Agent for the CSX and is authorised to sponsor all suitable listing applications and is always willing to discuss the process with entities considering listing.