WFE Interviews Greg Wojciechowski from Bermuda Stock Exchange
Being the President & CEO of one of the smallest member exchanges of the WFE and the first of many to author pieces in this new feature of the monthly Focus publication, I feel the considerable weight to deliver an informative and relevant discussion on the BSX and our contribution to not only Bermuda’s domestic economy but also to the global capital markets.
I have the distinct pleasure to be leading the BSX organization at a critical time during its corporate and infrastructural development. This has been an exciting period for the BSX and Bermuda’s domestic capital market. My team and I are proud of the exchange platform that we have introduced in our country and are grateful for the support and guidance of many friends and colleagues who have helped us along the way to adopt the important principles set out by organizations such as the World Federation of Exchanges and IOSCO.
FOCUS: Could you give us a bit of background about your exchange?
GW: Founded in 1971, The Bermuda Stock Exchange (BSX) has been in existence for 40 years. The BSX was established to provide market support for shares in Bermuda domestic equities and fixed income.
Although the Bermuda market is small by comparison to other WFE member exchanges, the BSX was created for very similar important domestic reasons such as; capital raising support, investor protection, transparency, price discovery, order execution and post trade related services. The BSX plays an integral role in the development of Bermuda’s domestic capital market.
As Bermuda’s domestic economy and international business segments rapidly grew, the need to modernize the stock exchange was necessary and in 1992, the BSX initiated a significant modernization process resulting in the structure and market we operate today.
Changes in 1992 included, incorporating the Exchange by way of Private Act thus creating a for profit/private entity (one of the very few at that time), an expanded board of directors and commencement of work on the Exchange’s regulatory and operating infrastructure, which was completed in 1995.
During the BSX’s modernization process, critically important Exchange recognitions and designations were sought and received from; The Bermuda Monetary Authority, The US Securities and Exchange Commission, the United Kingdom’s Financial Services Authority, HM Revenue & Customs, The Australian Tax Office and most recently Canada’s Ministry of Finance.
The result of the above is the structure in place today. The BSX operates a fully electronic/integrated trading, clearing, settlement and depository system (technology licensed from NASDAQ/OMX). Over 600 securities are listed with a market capitalization (excluding listed investment funds) of over $300 bn. The BSX pays a significant role in Bermuda’s domestic economy with the market capitalization of domestically listed securities being approximately 25% of the Gross Domestic Product of the country (based on 2010 figures). As a stakeholder in the Bermudian economy, the BSX plays a critical role in domestic policy and regulatory discussions.
FOCUS: How active are foreign investors in your exchange? How accessible is your market?
GW: Foreign investors are active in the domestic market and in the international securities that are listed on the Exchange.
Decades ago, the Bermuda Government enacted legislation which prevented foreign ownership stakes in domestic companies exceeding 40% of the shares in issue. Over the last 5 years, interest in the domestic market has grown to such an extent that many large BSX domestic issuers reached their statutory foreign ownership levels. Realizing the impact this had on price discovery, capital raising and market liquidity, the BSX worked closely with the Government to seek a solution.
In the summer of 2012, the Bermuda Government made amendments to law so that domestic companies could be free of foreign ownership restrictions if they were listed on the BSX and operating within specified industries. As of today, two BSX domestic issuers have sought and received exemption and one application is nearing conclusion.
On the international side of our business, all other products are driven from external sources and have international institutional support.
Accessibility to the Exchange is something that the Management of the BSX is very focused on at present. Two of our most active products that will be discussed below are generating more and more trading interest and we are seeking to expand the ability for market access by international investors.
FOCUS: What new project/product are you currently working on?
GW: The main “project” that the BSX is and will be working on well into 2013 is a technology upgrade to our mission critical systems.
In respect of products, we are seeing very robust business in the Insurance Linked Securities space and our SME market.
Bermuda is the world’s third largest supplier of reinsurance (behind London and NY). Bermuda insurers write 15% of the aggregate global reinsurance premiums and supply 40% of broker placed reinsurance in the EU and the US.
The method by which global reinsurers are seeking capital is evolving and risk transfer directly into the capital market is becoming more frequent. Capital market vehicles such as Catastrophe Bonds are becoming better understood by global institutional investors.
Given the importance of Bermuda in this industry and the platform that the BSX has created, we see Bermuda and the BSX as the logical place for the insurance and capital markets to convergence.
To date, the BSX has listed over 45 structures with an aggregate market capitalization of over $5.4 bn which represents over 25% of the issued market.
The BSX is actively working with participants in the secondary market to expand exchange support to the asset class.
In relation to our work in the SME space. The BSX has for several years successfully operated its “Mezzanine Market”, a segment of our international equity board. The Mezzanine Market targets high growth potential companies in their early stages of corporate life.
Last and probably most important, in December 2011, the TMX Group made a strategic investment in the BSX which resulted in a 16% equity stake and TMX Group CEO Tom Kloet joining the BSX Council.
This was an exciting development for the BSX as our association with the TMX gives the BSX management and staff immediate access to a team of seasoned stock exchange professionals in all areas of the exchange business. We are actively working with our colleagues in Toronto to determine areas of mutual commercial cooperation.
FOCUS: What are the challenges you see in your market today and in the future?
GW: From a macro perspective, the main challenge we see today is the continued headwinds caused by global economic conditions.
Although the Bermuda domestic market is small, the country’s international business sector is significant and as such reacts to global economic conditions which therefore impacts domestic market sentiment. That said, we are beginning to see green shoots such as the products mentioned above.
Two areas on which we remain keenly focused are; keeping up with regulatory/market changes occurring outside the jurisdiction which could impact our business and our clients and continuing to deepen the accessibility of our market to international participants.
FOCUS: How do you assess your exchange’s position at a time of increased globalization?
GW: I am energized by the potential of a small/niche exchange such as the BSX.
I believe that, at the BSX, we have taken careful and deliberate steps to be part of the global capital market framework by leveraging our unique strategic physical location (nestled between two of the largest capital markets in the world) and supporting products that play to the strengths of Bermuda’s international business platform .
We have been innovative and entrepreneurial in approach since our inception and that is now coded in the organizations DNA such that we will continue to seek new applications for our Exchange and the jurisdiction.
In respect of the global exchange space, I believe there will be a place for regional and niche focused markets and exchanges. I believe that the type of work we are doing in Bermuda and at the BSX clearly lends itself to becoming more and more important and interconnected.