Gibraltar Stock Exchange
Gibraltar will soon get its own stock exchange, as Nick Cowan explains
What will the introduction of the Gibraltar Stock Exchange mean for the jurisdiction?
First of all, Gibraltar is the last EU jurisdiction without an exchange. It has a very strong funds collective investment schemes infrastructure because they’ve been domiciling investment funds here for years. When fund managers look at the criteria in helping them choose a jurisdiction, the following are important considerations: a flexible and accessible regulator;, the jurisdiction’s approach to the Alternative Investment Fund Managers Directive (AIFMD) and the ease with which one can re-domicile funds to the jurisdiction; a pro-business government; speed-to-market, pricing; the passporting benefits that come with being a member of the EU; but just as important as all that, the presence of a stock exchange.
As a funds jurisdiction, Gibraltar PLC’s value is less than optimal because it hadn’t the facilities to domicile and list a fund, unlike its peers in Malta, Ireland and Luxembourg. It has a fantastic funds product in the experienced investor fund, but it was failing to offer a full suite of services without the exchange.
We anticipate that GSX will be the catalyst to elevate Gibraltar to be a realistic alternative to other jurisdictions—somewhere attractive for collective investment schemes to domicile and list. Not having an exchange has been to Gibraltar’s detriment, and now we hope it will be a slightly bigger drawing pin on the map.
What is the significance of the timing?
It is actually a bit of a coincidence. Post-crisis, the regulatory environment has changed dramatically, and with the Alternative Investment Fund Managers Directive (AIFMD) coming online, the timing has worked out incredibly well.
Gibraltar has been catapulted to be one of only four EU jurisdictions that offers a competitive and fiscally attractive offering in terms of funds, particularly for domiciling. The regulatory environment has helped Gibraltar enormously. We are seeing a drive from offshore domiciles to onshore, and this is only going to continue, as I don’t see the regulatory positioning of the EU softening.
There’s also a global drive to listing. Investors want increased visibility, an increase in transparency and increased accountability from their funds managers and a listing gives them that additional level of comfort. They need to know that funds have been through a due diligence process that includes a regulator. In our case, an EU regulator.
The timing has been opportune and very fortunate. When setting GSX up, the first thing we did was to look at what was happening in the world. We saw that the regulatory environment was changing, so with the existing funds infrastructure in Gibraltar, we reverse-engineered the business plan.
The important thing was to keep it simple and increase the probability of success, and in this case there were external driving factors that we took in to account to form the basis of the exchange.
What companies will GSX target as its listing members?
In 2006 and 2007, there was an attempt to launch a Gibraltar exchange called GIBEX, and they did us the service of putting various regulations through parliament here. When we got to it, there was already a Listing Rules Act, a set of regulations for securities and a set for a stock exchange. Previously, the types of members that could be admitted were European and Gibraltar-based banks.
We wanted to expand beyond that criteria so we worked with the regulator to become more inclusive. Now, companies must be regulated by the Gibraltar authority and have some experience in the funds infrastructure.
There are a lot of funds administrators, company managers and auditors in Gibraltar that all play an important role in the funds jurisdiction. Because of this, we wanted to widen the net as much as possible to enable these companies to list as member firms.
Although the doors are open to European banks, we anticipate that our first member firms will be local fund-related companies that are licenced by the local regulator. They are the ones invited for the first opening, and they have been very keen to sign up.
What kind of technology will GSX use?
In the first phase, we are not going to have a trading platform, so it’s all going to be very simple. We have a custom-built website sitting on top of a database where all our data is stored. We will enhance it as we move forward, particularly when we add further asset classes, but we probably won’t move to a trading platform for another 18 months or so.
How about clearing and settlement services? Will you provide them or engage someone to do it on your behalf?
Inevitably, we will probably outsource our trading. We will either connect with another exchange or license a technology platform for a certain amount per month. That would allow us to do what we do best.
My background is in trading, and I know what happens if you try to build a complicated platform by yourself. It’s like building a house. It will inevitably come in over-budget and late. In cases like this, it is usually better to get someone who has been doing this for a very long time.
How and when could GSX expand?
We have agreed a phased build-out with the regulator. Every phase we roll out will have to get approval from the regulator to ensure they are comfortable with the speed of expansion, and that they have the resources to support us.
We will begin with open-ended funds, which is happening right now. The second phase will be closed-ended funds and we hope to roll that out in the middle of 2015. Beyond that, we would like to introduce insurance-linked securities (ILSs), which we anticipate being some time in 2016.
In terms of the EU, there hasn’t yet emerged a hub to issue an ILS through. Gibraltar has made it clear that it would like to be the country of choice for this market and it would really help to have a stock exchange that could provide a listing for them.
How is Gibraltar going to become a global leader in European finance?
Having this exchange is the first step in that process. The government has made a significant commitment to the marketing of financial services by investing in four senior executives to join the government’s financial services marketing arm, Gibraltar Finance and has significantly increased the marketing budget. The jurisdiction has worked incredibly hard over the last two decased to move away from the reputation as a tax haven and a brass-plated jurisdiction.
Now, Gibraltar is compliant with every EU directive. It was recently announced that in terms of international cooperation and tax transparency, it meets the same standards as the UK and Germany, and it’s important to re-market the jurisdiction to make this clear.
Secondly, Gibraltar has a fantastic, experienced investor fund regime, which means you can bring a fund to market in 10 days. That’s also difficult to promote without an exchange to back it up. With GSX, we hope to complement this with a similar time-to-listing.
Finally, our size really differentiates us. The regulator works in the building next door to me, the finance director works three floors up from me. If there’s an issue, we can just go for a coffee and come up with a solution quickly. This is a very small place and if you’re fleet of foot that can really work to your advantage and get things done.
Because the government is so pro-business, they understand what we’ve got to do as a jurisdiction. To become a leader we want to differentiate ourselves by being price competitive and fast-to-market in a world of increasing regulation.
What happens next?
The hard part starts now. No previous attempt to launch a stock exchange in Gibraltar ever got as far as filing an application, so we’ve already achieved a lot.
Without an exchange, it has been hard to build the funds business, but they’ve done incredibly well, and that’s because of the quality of the people and the quality of the product.
Now, there’s a unique opportunity, not only for Gibraltar but for the whole financial community. Fund managers will be able to set up or list a fund in a robust and controlled environment that’s also very fast.
We just have to convince people that Gibraltar is a safe place in which to conduct your business.
We’re incredibly excited about the next five years and we hope that GSX will play a big part in elevating Gibraltar as a whole.
