8.4 Issues and recommendations
8.4.1 Introduction
The market of the BSX has grown slowly based on domestic
securities, the listing of funds and international securities.
The volume on the BSX is generated by crosses originating from
securities listed on the New York Stock Exchange. This is driven
by two considerations, namely price and the need to transparently
report these trades. This will be subject to change when the decision
by the NYSE to drop rule 390 (which requires the reporting of
such crosses on a recognised exchange) takes effect.
Trading occurs via an electronic limit order book
system which provides a real time feed into Bloomberg.
The BSX is moving towards a clearing and settlement
system whereby all securities traded on its automated system will
be matched, cleared and settled through an automated platform.
Registration will be centralised and trading will be de-materialised.
This will in essence only add full automation to a process which
is already operating generally in line with IOSCO Principles.
8.4.2 Supervision
Member firms are regulated purely by means of off-site
information and consultation. No on-site visits have been carried
out. This is not in line with IOSCO Principles.
Having regard to the size of the market, there are
sufficient staff resources available to monitor secondary market
activity. However, as good practice dictates, and more importantly
given the high risk nature of certain securities traded, it is
essential for a dedicated supervision area to be established.
This area should cover supervision and on-site inspections.
Such visits must be carried out on all categories of member including
the listing sponsors to ensure compliance with BSX rules. We are
advised that BSX trading members will be subject to on-site inspections
under the Investment Business Act.
8.4.3 Listings
There has been an introduction of listed instruments
which are high risk onto the Mezzanine Market. These are well
signalled to investors and are aimed at high net worth individuals
and institutional investors. As a result there is reduced regulation
with respect to these instruments as is the case for similar instruments
in other jurisdictions.
Rules are in place to cover primary and secondary
market integrity including false and misleading information, insider
trading and false markets. However, the listing rules do not specifically
provide against false or misleading information which we consider
to be contrary to the IOSCO Principles for issuers.
Although the BSX is comfortable with this arrangement,
on the basis that there are a number of rules and requirements
to ensure that investors have accurate and timely information
to prevent the creation of a false market, it has confirmed that
it will be content to include the point specifically in its rules
when these are next amended.
8.4.4 Money laundering
The BSX is exempt from the proceeds of crime and
money laundering legislation although there remains a duty to
report suspicious transactions. We are informed that this position
arises as a consequence of the practical difficulty of compliance
with certain of the know your customer obligations. The BSX currently
has no memoranda of understanding. However, there is evidence
of co-operation with overseas regulators.
These issues are considered for the jurisdiction
as a whole in the section on international co-operation.
8.4.5 Liaison between the BSX and the BMA
We understand that the BMA and BSX will continue
to meet regularly at a number of levels within the two organisations.
Although the frequency of higher level meetings covering prudential
matters has recently changed from monthly to quarterly, this change
reflects the corresponding increased frequency of working contacts
within the BSX and the investment division of the BMA.
The BMA and the BSX should consult and agree the
responsibility for carrying out checks on new applicants for BSX
membership and IBA licences to avoid unnecessary duplication of
effort.
