Bermuda Stock Exchange (BSX)
The Hamilton exchange where most of the market's cat bonds and insurance-linked securities are listed, an official listing that serves investor mandates more than trading.
The Bermuda Stock Exchange (BSX) is the Hamilton exchange where most of the market's cat bonds and insurance-linked securities (ILS) are listed. Its official listing serves investor mandates more than trading. A cat bond issued in Bermuda by a special purpose insurer and placed under Rule 144A with qualified institutional buyers does not need a listing to exist. It almost always has one, and almost always on the BSX. The reason sits with the buyer's rules. Many funds, pension plans and UCITS vehicles (undertakings for collective investment in transferable securities) can hold only securities admitted on a recognized exchange, or must cap their unlisted share. For that need the BSX built a set of listing rules specific to insurance-linked securities, with a lighter admission file, short timelines and modest fees, and it also lists ILS funds and collateralized reinsurance vehicles. It now carries the large majority of cat bonds outstanding worldwide. A listing does not create a market. The notes trade over the counter, between brokers and managers, and the price the exchange shows rarely reflects a transaction; anyone marking a portfolio relies on dealer quotes. The listing also works as a disclosure point: event notices, calculation reports, extensions and redemptions are filed there, which makes the BSX the first public source for following a bond hit by a loss. The regulator, the Bermuda Monetary Authority, licenses the issuer as a special purpose insurer; the two roles are separate, and an exchange notice is not prudential supervision. There is competition in Dublin, London and Singapore, the last of which has subsidized issuance, without moving the center of gravity.
Textbook case, invented figures: a UCITS fund (undertaking for collective investment in transferable securities) capped at 10 percent of unlisted securities is allocated 15 million dollars in a 300 million Florida cat bond. Without admission on the Bermuda Stock Exchange (BSX), the position would take its unlisted share from 7 to 12 percent, above the cap. The issuer files, the listing takes effect on the settlement date, and the fund can take the position. Not a single trade will happen on the exchange over the bond's three-year life.
BSX, Bermuda Stock Exchange, cat bond listing, ILS listing venue
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