You Do Not Want to Be Exempt from this Listing!
2020 was a year of change. Many industries have had to modify how they do business and operate. Corporate Jamaica has adjusted to virtual meetings and conferences and financial institutions have developed and optimized electronic services. The Jamaica Stock Exchange (“JSE”) has ensured it is in no way exempted from these developments and started 2021 with a bang! In line with their theme: “Re-structuring, Restoring, and Renewing: Re-Connecting the Pillars of Capital Markets”, the JSE launched its new private market platform (“the Platform”).
While the Platform is new, the private market is not. The private market relates to investments in equity and debt of companies, not trading on a public exchange. In Jamaica, the trade of securities, excluding shares of private companies, are governed by the Securities Act and regulated by the Financial Services Commission (“FSC”).
What is the Private Market Platform?
The Platform is said to facilitate the smooth transfer of “exempt distributed securities” trading in the private marketplace among qualified investors. The JSE has issued Private Market Rules (“PM Rules”) which govern the administration and operation of the Platform.
Exempt Distribution Guidelines
Generally, a company that wishes to issue any security in Jamaica would have to register this offering with the FSC, which would require a prospectus. A company may apply to the FSC, pursuant to the Exempt Distribution Guidelines, to offer such securities by way of exempt distribution which removes the need for registering a prospectus. Under the Exempt Distribution Guidelines, securities may be offered to a qualified investor such as an accredited investor or minimum purchaser or as otherwise allowed under the Guidelines. An accredited investor may include deposit taking institutions, approved superannuation funds, approved retirement schemes, specific pension schemes, and any individual whose net worth exceeds J$50 million. A minimum purchaser is defined as a person who will purchase no less than J$10 million of the securities being offered.
It is important to note that listing on the Platform is not an alternative to applying to the FSC for exempt distribution, rather it is an optional step to offering exempt distributed securities in the private market. Proponents of the Platform believe listing on the Platform will provide greater brand recognition for an issuer, greater liquidity for an investor and access to trading information for brokers.
How to list on the Platform?
The first step to listing is to file a Notice of Exempt Distribution and indicative term sheet of the offering with the FSC. Once the offer has been completed, an Exempt Distribution Report with a copy of the final term sheet should be submitted to the FSC within 15 working days after the distribution date.
Once the exempt distribution registration has been concluded, the issuer may then apply to the JSE to be listed on the Platform. This process includes submitting an application form, the private listing agreement, letter from the FSC confirming exempt distribution registration, certified copy of the Exempt Distribution Report, certified copy of the Articles of Incorporation of the issuer, resolution of the directors/shareholders authorizing the listing and a legal opinion from the issuer’s attorney. There is a requirement that the securities being listed must be valued at no less than J$100 million to be on the Platform. It is important that the issuer is also in good standing and compliant with all its regulatory bodies, including the Companies Office of Jamaica, before either the JSE Private Market Application or the Exempt Distribution Registration is made.
What Happens After Listing?
Where exempt distributed securities are successfully listed on the Platform, the issuer will have dual ongoing obligations under both the PM Rules and the FSC Guidelines. The FSC, in December 2020, published updated Guidelines for Exempt Distribution, whose obligations are similar to those under the PM Rules. It would appear that the regulators (the JSE & FSC) have been working together to ensure the Platform, in its operation, does not contradict or negatively impact the operation of the private market as we know it.
Some obligations under the Private Listing Agreement include notifying the JSE of (i) any material disclosure or (ii) any dealings in the listed securities by directors, senior management and connected persons or (iii) the date of payment of any dividend, interest on capital and/or other cash distribution. The issuer is to also publish the annual audited financial statements at least 90 days after the end of the fiscal year. The FSC Exempt Distribution Guidelines now require similar reporting requirements including (i) quarterly unaudited financials and annual audited consolidation financial information, (ii) timely notice of any material change in the affairs of the issuer and (iii) other relevant business or financial information that investors may need or request.
Similar to listing on the public exchange, listing on the Platform incurs ongoing listing fees such as the annual listing fee, supplementary private listing fee and removal fee.
What remains is that the securities dealer/broker is still the entity solely responsible for obtaining the anti-money laundering documentation for the issuer. In the recently updated Exempt Distribution Guidelines, the FSC has now expressly indicated that dealers/brokers are expected to develop policies and procedures that are compliant with the anti-money laundering/counter-financing terrorism legislation and to maintain basic records of the issuer, purchaser and the offering related documents.
Interestingly, the PM Rules states that the JSE Main Market Rules will apply in the absence of applicable provisions in the PM Rules. While this catch-all provision aims to close any gaps that may appear in the PM Rules, such a provision may inadvertently place obligations on issuers not previously provided for in the FSC Exempt Distribution Guidelines. Ultimately an issuer may find that it is being held to a high standard of operating similar to that of a company listed on the Main Market.
If you think this new type of listing may be right for your company, embark on the journey today. Do not be exempt from this listing in 2021!
Shaniel May is an associate at Myers, Fletcher & Gordon, and is a member of the firm's Commercial Department. Shaniel may be contacted via firstname.lastname@example.org or www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.