Intertrust N : Why SPACs should consider heading for The International Stock Exchange (TISE)

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Incubator facilities and a new trading system make the exchange a good match for Europe's growth companies, say Ellen Chislett, Head of Jersey Capital Markets and Cheryl Heslop, Associate Director Capital Markets.

The American astronomer Carl Sagan once said: 'There is no such thing as a stupid question.' That's good, because the rise of Special Purpose Acquisition Companies (SPACs) has generated many questions here in the Channel Islands. Even sophisticated investors are struggling to understand exactly what constitutes a SPAC and how to navigate the regulatory scrutiny that has grown around them recently.

Those inquiring are a mixed bunch. Private equity investors, Family Offices, high-net-worth entrepreneurs, banks, lawyers, issuers and plotting SPAC teams want to see how Guernsey-headquartered The International Stock Exchange (TISE), and its local rules fit in with global SPAC opportunities. So we asked Mark Oliphant, Head of Communications at TISE, how the exchange sizes up to the main markets and if it can offer alternative benefits to our clients.

TISE can offer SPACs important flexibility

TISE has been accommodating SPACs since 2015, but inquiries have spiked over the past six months. The interest has been from a mix of banks, accounting firms, and potential SPAC management teams, both from further afield and closer to home.

SPACs listed on TISE will benefit from more flexibility in its escrow and acquisition approval requirements. There is also a 36-month timeframe for a Qualifying Acquisition (QA) and a competitive and transparent fee regime.

Crucially, there is also no automatic suspension of trading upon the announcement of a QA. The presence of this rule has been a hindrance for more SPAC listings in London due to the apparent lack of competitiveness compared to the broader market. It is currently one element which is subject to a wider review of the listing rules in the UK.

TISE's unique selling proposition is that it is in Europe, but is free of the blanket prospectus and market abuse rules issued by EU directives (as well as the UK). These can be onerous and are often not proportionate.

'We have found that the listing requirements of other venues are not always proportionate to the size of the companies involved, the type of product being offered or the level of sophistication of the investors,' says Mark.

'TISE is widely recognised internationally - for example we are considered a Designated Offshore Securities Market (DOSM) by the US Securities and Exchange Commission - but being based in Guernsey means we are able to offer a regulated market with listing and market abuse rules which are robust but proportionate.'

When it comes to creating a prospectus for a TISE-listed SPAC, Mark suggests that this enables teams and their advisers to have greater flexibility. The main exchanges, by contrast, tend to aim for one-size-fits-all rules.

TISE's approach would be particularly useful, for example, for a group of high-net worth individuals pooling their capital to form a SPAC. This is something we expect to take off in many markets, based on current inquiries.

TISE's responsiveness also extends to the review of listing applications, with initial listing applications being reviewed within three business days and any subsequent reviews being completed within two business days.

On fees, TISE also sees itself as being cost-sensitive, to the benefit of issuers and investors alike.

'Our initial and annual fees vary according to product type rather than market capitalisation and are competitive compared with other similar exchanges and more reasonable than larger exchanges, considerably so in some cases,' Mark says. 'Our surrounding service providers can also provide cost-effective services given the proportions we're talking about.'

He suggests that lower listing costs also 'minimise risk' if a target does not sign within the 36-month SPAC timeframe. This is longer than most exchanges, where the average is 24 months.

'If you establish the SPAC and actually no acquisition was made and you had to return everything back to the investors, the costs incurred would be minimised,' he says.

New TISE trading system aims to tackle liquidity issues

The Channel Islands have a strong institutional investor connection thanks to their reputation as a fund structuring hub. So TISE is known for being a debt market driven by sophisticated investors. However, there has always been room for improvement when it comes to liquidity.

'Liquidity is something that we know we have to grow, especially on the equity side,' Mark tells us. 'We believe we can do that by creating the right environment through brokers and market makers that can facilitate vehicles such as SPACs.'

A new trading system, being introduced this year, could help stimulate a more liquid market which would be particularly attractive for smaller or incubator SPACs. The new system is aimed at being particularly attractive for growth companies for example with valuations of £100m and below, which could benefit not just from continuous trading but also an auction proposition to concentrate liquidity movements.

The system will be auction-driven to help price discovery, especially for growth companies. 'Our aim is to create more liquidity in their shares,' he says.

'A TISE SPAC listing could also be an opportune way for UK tech companies at the £100m and below mark to access capital on the public markets within a listing framework that has rules and reporting costs that are proportionate to a growth company's needs and capabilities. TISE could easily act as a stepping stone for small companies to later flip to a main market.'

US exchanges have dominated SPAC activity so far but the accessibility and approachability of TISE staff should suit growth companies and their investors much better.

The incubator approach and the new liquidity-generating trading system could be instrumental in developing the TISE-listed SPAC ecosystem. This will allow the exchange's recently appointed CEO, Cees Vermaas, to put his stamp on yet another marketplace.

Listing a SPAC on TISE: what you need to know before applying

• Minimum market capitalisation: £1,000,000
• Funds to be held in escrow: capital raised less operating costs
• Working capital: must not exceed requirements over 12 months unless shareholder approval
• Listing document approval: exchange approval
• Management team shareholding: disclosure of interests; minimum 12-month lock-in post-QA
• Permitted timeframe: 36 months
• Investment policy: sufficiently detailed to allow adequate investor assessment
• Acquisition approval: none unless different to listing document (majority of shareholders and directors)
• Accounting requirements: annual and, where prepared, interim
• Fees: initial £5,000 / annual £2,000
• Initial SPAC application response time: 3 days
• Subsequent application review response time: 2 days

What happens if a QA is not made within the 36-month time frame?

• Suspension: first day after 36 months for QA
• Liquidation: special resolution for voluntary liquidation
• Distribution: within 60 days following from end of 36 months for QA
• Delisting: suspended for distribution, then delisted

What documents are required to start the SPAC review process?

• Listing application form (Appendix 1)
• Listing document marked up in accordance with the applicable disclosure requirements
• Non-applicability letter
• Letter of derogation, if applicable
• Executed deed or other instrument constituting the securities
• Structure chart

Why Intertrust Group?

We provide a bespoke approach and we understand how markets are changing. Intertrust Securities (Jersey) Limited is a member of TISE and would be delighted to assist in acting as a listing agent for your debt issuing and SPAC vehicles.

• Experience: Our team specialises in the administration of SPVs and other structures used in debt capital markets transactions
• Connected: We can use our global network to provide a seamless, cost-effective and efficient listing agent service
• Experts: We act as directors to SPVs on various global exchanges and are familiar with initial and continuing listing obligations You can learn more about our capital markets service offering here.