Hamilton, Bermuda, August 14, 1998 - Recent changes to U.S. National Association of Securities Dealers, Inc. (NASD®) rules on "hot issue" securities offer a significant advantage to hedge funds that list on an offshore stock exchange like the Bermuda Stock Exchange (BSX).
After August 17, 1998, a BSX listing will enable some hedge funds to participate in "hot issues" - over-subscribed public offerings of stock which trade at a premium in the secondary market -- from which they had effectively been barred by NASD regulations.
The NASD restrictions were intended to prevent broker-dealers from artificially inflating the price or reserving "hot issues" for themselves or preferred clients. As hedge funds had to maintain segregated accounts for clients who were subject to the restrictions, many funds avoided initial public offerings (IPOs) that were "hot issues."
Under the new rules, NASD members may sell "hot issues" to offshore funds if the fund:
· Is listed on a foreign exchange (or is authorized for sale to the public by a foreign regulatory authority).
· Has more than 100 investors.
· Does not invest 5% or more of its assets in the "hot issue."
· Does not have investors which are restricted persons under the NASD regulations who control 5% or more of the fund.
The fund must present to the NASD member a written certification from counsel or an accountant (either licensed in the US or in the hedge fund's jurisdiction of corporation).
William Woods, CEO of the BSX, said "The NASD interpretation presents another reason for hedge funds to seek listings on an offshore stock exchange - and the BSX is a preferred exchange for listing hedge funds."
He continued "Hedge funds are interested in the BSX because the exchange is focused on the institutional market, has SEC DOSM status under Reg S, and already lists more than 135 offshore funds. The BSX is also based in an OECD member state, an important consideration for many institutional investors."
The BSX offers a fast track listing process for offshore funds with a minimum investment level of US$100,000. The BSX regulations respond to the sophistication of hedge fund investors, and do not include the prescriptive restrictions on investment policies, use of prime brokers, custodial arrangements, and manager's track record that more "retail-oriented" exchanges require.
The BSX is already responding to listing applications from top US fund managers. The listing process, on average, takes from one to three weeks with complete documentation.
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For more information, contact Stephen Davidson (sdavidson@bsx.com) at the Bermuda Stock Exchange at phone 1-441-292-7212 or fax 1-441-292-7619. Information is also available at www.bsx.com, on Bloomberg at BSX
The Bermuda Stock Exchange is a fully-electronic offshore securities market founded in 1971. A stock exchange in an OECD member state, the BSX lists more than 200 securities -- including offshore funds and hedge funds -- and is recognized by the U.S. SEC. as a "Designated Offshore Securities Market" under Rule 904 of Regulation S.
This release refers to National Association of Securities Dealers' (NASD®) "Free-Riding and Withholding Interpretation" amendments to Interpretive Material 2110-1 (IM-2110-1) and Rule 2720 which were approved by the U.S. SEC on May 18, 1998.